FX conversion for arising vs remittance basis

[rr296]

In anticipation of the implementation of the mixed fund cleansing rules later this year (hopefully), I am sorting through the mixed fund spaghetti that I have managed to create over the past years.

Quite a lot of those mixed funds are denominated in currencies other than Sterling. My understanding of the FX rates to apply while on the remittance basis is:

• For foreign chargeable gains - this is calculated in sterling (disposal proceeds in GBP - acquisition basis in GBP) using the FX rates of the date of disposal and acquisition respectively, and the CG amount remains fixed in sterling and is then simply translated back to the foreign account currency using the FX rate of the day. In other words,the GBP CG is fixed but its foreign currency amount will vary with the FX rate.

• For all forms of foreign income paid in foreign currency - the income amount is fixed in the foreign currency, and only translated into GBP on the day of an actual remittance. Until such time, the foreign currency amount of the income item is fixed but the sterling amount varies

• For all forms of foreign income paid in Sterling (even if received in foreign currency or converted to foreign currency) - the income amount is fixed in Sterling - similar to chargeable gains

Assuming that I then switch to the arising basis in later years and continue to receive money into these same mixed funds, then the original 'remittance years' amounts continue to be treated in the same way as outlined above - but any new amounts received on the arising basis need to be converted into Sterling on the date they actually arise - including for foreign income paid in foreign currency.

Is this outline correct in principle?

And is this what people actually do in these circumstances? I found a number of publications from around the 2009-10 time (e.g. from the ICAEW - Foreign currency issues - Taxguide 4/11) which outline a debate between the 'HMRC view' and the 'practitioner view' with HMRC pushing for the above but practitioners taking an alternative approach where everything (incl. foreign income in foreign currency) is translated into sterling on the transaction date. I cannot seem to find anything more recent (from say the last 5 years) that gives a view on whether this debate was ever settled eg through case law. Are there any updated views on this?

[maths]

I don't disagree with any of your comments.

As far as I am aware the discussion between HMRC and taxpayers referred to in your final paragraph was never, per se, resolved.

[rr296]

I don't disagree with any of your comments.

As far as I am aware the discussion between HMRC and taxpayers referred to in your final paragraph was never, per se, resolved.

thanks for confirming maths!

[rr296]

• For all forms of foreign income paid in Sterling (even if received in foreign currency or converted to foreign currency) - the income amount is fixed in Sterling - similar to chargeable gains

Would anyone have to have an original source reference for the above statement by the way?

I based my interpretation on the statement that "There is also a widely circulated but unpublished technical note in which HMRC deal with foreign income received offshore in sterling which is then converted into a foreign currency. The amount of a remittance basis user’s foreign taxable income will be the amount actually due and originally received in sterling, regardless of when it is remitted."

This was made by James Kessler QC in a 2010 article in Taxation magazine ("Fair Exchange?" - available online). I cannot seem to find anywhere a copy of that technical note - perhaps not surprising as it's 'unpublished'. And the RDRM manual does not appear to make any reference to this point...

[maths]

See Appendix 1 page 28 of the following:

http://www.icaew.com/-/media/corporate/ ... ssues.ashx