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Where Taxpayers and Advisers Meet

Is FX an allowable cost?

FigNewton
Posts:46
Joined:Fri May 06, 2016 5:05 pm
Is FX an allowable cost?

Postby FigNewton » Tue May 01, 2018 6:42 pm

When I receive US dividends, say $50.57, my broker converts this to GBP and then deducts a 0.5% foreign exchange charge. So I receive £35.34 minus £0.18 foreign exchange charge. When reporting my dividend income to HMRC can I report my dividend income as £35.16 = £35.34 - £0.18?

Similarly, if I sell US shares my broker deducts at 1% fx charge. So selling shares worth £10,000 I receive only £9,900. Can I use £9,900 as my proceeds for purposes of CGT calculation? Similarly, buying £10,000 of US shares my cost would be £10,100 after addition of fx charge.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Is FX an allowable cost?

Postby pawncob » Tue May 01, 2018 9:54 pm

Rather bizarrely, I think the divs are declared before any fx charges and the sale is declared net of any charges. Anyone disagree?
With a pinch of salt take what I say, but don't exceed your RDA

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Is FX an allowable cost?

Postby maths » Wed May 02, 2018 7:25 pm

Dividends are declared gross ie £35.16.

Regarding CGT, charges are classed as incidental costs and are deductible.

FigNewton
Posts:46
Joined:Fri May 06, 2016 5:05 pm

Re: Is FX an allowable cost?

Postby FigNewton » Wed May 02, 2018 7:36 pm

Dividends are declared gross ie £35.16.

Regarding CGT, charges are classed as incidental costs and are deductible.
I had a reply from HMRC Customer Support on Twitter today saying "You should report the gross dividends and gains for tax purposes. Foreign exchange currency costs are not allowable expenses."

However, I am not always convinced that the HMRC support people are completely on top of all intricacies. When I buy or sell a US stock my acquisition cost and sale proceeds in GBP are at the best exchange rate I can obtain at that moment, but this is invariably less favourable to me than spot rate. Where can I read that that for CGT the foreign exchange markup over spot rate is treated by HMRC as an incidental cost? It does seems unfair that HMRC can tax profits that I can not actually see myself because of currency spreads around the spot rate.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Is FX an allowable cost?

Postby maths » Thu May 03, 2018 3:35 pm

I had assumed the charges were effectively commissions to the broker for acting.

If not, and the charges are for simply converting the $ into £ this cost is not allowable for CGT.

DavidTreitel
Posts:271
Joined:Thu Aug 16, 2012 4:31 pm

Re: Is FX an allowable cost?

Postby DavidTreitel » Thu May 03, 2018 6:39 pm

Case law is clear for CGT that one use a spot rate. There is no case law stating which spot rate. Is it an average trading day rate, an end of day rate, an Interbank rate, a cash equivalent rate (which is what the IRS in the United States accept), a buy rate, a sell rate etc? In the absence of case law, logic suggests a fair spot rate is a cash equivalent rate. However, even with cash rates there are wide differences between - say - Transferwise and a bureaux de change at an airport. Hopefully Parliament or a court will clear up this muddle for everyone one day.

FigNewton
Posts:46
Joined:Fri May 06, 2016 5:05 pm

Re: Is FX an allowable cost?

Postby FigNewton » Fri May 04, 2018 2:28 pm

My annual "consolidated tax voucher" from AJ Bell shows only the stock sale proceeds in GBP (net of £9.95 commission and after they exchange to GBP). There is no breakdown as to how much of the proceeds is due to the spot rate value of the proceeds and how much is commission to the broker for making the foreign exchange using a rate less favourable to me than spot rate. Am I really expected to calculate what I would have received if the conversion had been at spot rate and then report that? If that were so, then I would have expected the consolidated tax voucher to show it. No?

FigNewton
Posts:46
Joined:Fri May 06, 2016 5:05 pm

Re: Is FX an allowable cost?

Postby FigNewton » Fri May 04, 2018 2:59 pm

However, even with cash rates there are wide differences between - say - Transferwise and a bureaux de change at an airport. Hopefully Parliament or a court will clear up this muddle for everyone one day.
So it sounds like I should be on safe ground using "AJ Bell rate" as equivalent to "cash rate". A 1% markup is certainly better than bureaux de change at an airport.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Is FX an allowable cost?

Postby maths » Fri May 04, 2018 6:33 pm

From HMRC's perspective the key where foreign exchange rates are in point is consistency of approach over time.

Adopting the figures provided by Bell is fine.


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