Thanks. I'll use the spot rates.
I wasn't quite clear on the second bit. I will calculate a gain/loss for each disposal of an option but are purchases of options (shares, etc) in the account considered to be disposals of US dollars and sales of options (shares, etc) considered acquisitions of US dollars, with the dollar balance itself being treated as a chargeable asset, if you see what I mean.
E.g. I fund an account with £10,000 on 6 April and convert the entire balance to US dollars at an actual exchange rate of say 1.3 so I have a balance of $13,000. On 1 May I purchase an option for $5,000 (spot rate 1.27) and my cash balance in the account drops to $8,000. On 10 July I sell the option for $6,000 for a nominal profit of $1,000 so cash balance is now up to $14,000 (spot rate 1.31). The account continues to be maintained in US dollars indefinitely. What are the relevant figures to declare to the tax man?
For the option: acquisition cost is $5,000/1.27 = £3,937. Disposal proceeds $6,000/1.31 = £4,580. Computation of gain/loss = £4,580-£3,937=£643 gain.
So far so good.
But the balance of funds in the brokerage account is now $14,000. If this was treated like a foreign currency bank account or debt I, If I understand correctly, there is no further gain/loss beyond the £643 gain to compute, even when I eventually convert part or all of this back to sterling. On the other hand, if the dollar funds are treated as a chargeable asset, the purchase of an option on 1 May is a disposal of US dollars and the sale of the option on 10 July an acquisition of US dollars as per the calculations below, giving rise to a further £91 gain to be declared for this tax year with further gains/losses to be computed in the future. I wasn't sure which method of calculation would be correct; in this simple case, the results are pretty much the same allowing for rounding, but in real life I have monthly dollar interest paid on the balance and the several transactions would fall under same day or 30 day matching rules.
Part disposal method:
Cost of dollars prior to disposal - $13,000/1.3 = £10,000
On 1 May, dispose $5,000 by purchasing option: A = $5,000/1.27 = £3,937. (B = $13,000 - $5,000)/1.27 = £6,299. A/(A+B) = £3,937/£10,236 = 0.3846
Allowable cost of disposal = 0.3846 x £10,000 = £3,846
Computation of gain/loss = disposal proceeds £3,937 - allowable cost £3,846 = £91 gain.
Allowable cost of remaining balance = £10,000 - £3,846 = £6,154.
On 10 July, acquire $6,000 by selling option: £6,154 + $6,000/1.31 = £6,154 + £4,580 = £10,734 is the cost of acquisition of $14,000 going forward.
Share identification rules method:
Section 104 holding of dollars = $13,000/1.3 = £10,000
On 1 May, dispose $5,000 by purchasing option: Disposable proceeds = $5,000/1.27 = £3,937. Acquisition cost = $5,000/$13,000 x £10,000 = £3,846. Computation of gain/loss = £3,937-£3,846 = £91 gain.
Section 104 holding carried forward now comprises $8,000 with acquisition cost of £6,153.
On 10 July, acquire $6,000 by selling option: £6,153 + $6,000/1.31 = £6,153 + £4,580 = £10,733 is the acquisition cost of the section 104 holding of dollars going forward.