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Where Taxpayers and Advisers Meet

Exchange rate and CGT calculation

Poppy2006
Posts:5
Joined:Wed Nov 18, 2015 4:28 pm
Exchange rate and CGT calculation

Postby Poppy2006 » Mon Oct 16, 2017 7:47 pm

Hi,

I have sold a foreign property at the beginning of December 2016. The transaction was carried out in Euros. I am now trying to work out the capital gain and am not sure which exchange rate to use.

I know that HMRC publishes monthly averages. However, because the value of the pound fell significantly during December 2016, the exchange rate affects my tax liability a great deal.

So I wonder if I have to use the published monthly average or I can use the exchange rate in effect on the date the actual sale took place. Can I use the rates provided by XE.com or there is an official chart published by HMRC that I am not aware of.

Many thanks

bd6759
Posts:3770
Joined:Sat Feb 01, 2014 3:26 pm

Re: Exchange rate and CGT calculation

Postby bd6759 » Mon Oct 16, 2017 10:21 pm

You can use any reliable source. The rate on the day is the correct one to use.

maths
Posts:8447
Joined:Wed Aug 06, 2008 3:25 pm

Re: Exchange rate and CGT calculation

Postby maths » Tue Oct 17, 2017 8:12 pm

For clarification the capital gain needs to be computed in £ not euros.

Hence gain in £ equals £ value of sale less £ value of original cost.

FigNewton
Posts:44
Joined:Fri May 06, 2016 5:05 pm

Re: Exchange rate and CGT calculation

Postby FigNewton » Wed Jan 24, 2018 11:50 am

I was not sure whether I must use the spot exchange rate on the day of sale, or whether I could use the monthly exchange rate. I've had the following twitter exchange with HMRC Customer Support. I asked about the exchange rate to use when computing the sale proceeds of a US stock. In particular, I wanted to know if HMRC would allow for the fact that it was impossible for me to actually exchange money at spot rate.

Me: When I sell an asset with proceeds in USD it is impossible for me to buy £ at as good a rate as that day's spot rate, e.g. $10000=£7182. May I use a realistic figure for my proceeds, like £7182 - 1.5%, or what £s I actually received, for purposes of figuring my CGT?

HMRC Customer Support: You would need to convert the proceeds into pounds sterling using the exchange rates: https://www.gov.uk/government/collections/exchange-rates-for-customs-and-vat#yearly-averages-and-spot-rates

Me: Thanks. But these tables give monthly and yearly exchange rates, but not daily. Should I use the monthly rate for January 2017, say, for any sale made on a day in January 2017?

HMRC Customer Support: Yes, you can use the monthly exchange rate for January 2017.

Do you think I have been correctly advised on both points by HMRC Customer Support?

TennisGod
Posts:8
Joined:Sat Oct 16, 2021 7:19 pm

Re: Exchange rate and CGT calculation

Postby TennisGod » Fri Oct 22, 2021 3:45 pm

FigNewton - did you find out whether you should use the HMRC monthly average or say Bank of England daily rate

i am trying to find out myself now and it is extraordinary that HMRC do not lay down firm guidance - at least as far as i can find

FigNewton
Posts:44
Joined:Fri May 06, 2016 5:05 pm

Re: Exchange rate and CGT calculation

Postby FigNewton » Fri Oct 22, 2021 4:54 pm

I had no further word on this from HMRC. Why don't you try asking in their Facebook messaging and report back here? I'm interested to know what they say to you.

bd6759
Posts:3770
Joined:Sat Feb 01, 2014 3:26 pm

Re: Exchange rate and CGT calculation

Postby bd6759 » Sat Oct 23, 2021 12:22 pm

The only “correct” method is to use the rate on the day of the transaction.

HMRC will not object to using the average if it does not significantly affect the result.

The costs of exchanging are not allowable costs.

TennisGod
Posts:8
Joined:Sat Oct 16, 2021 7:19 pm

Re: Exchange rate and CGT calculation

Postby TennisGod » Sat Oct 23, 2021 12:46 pm

@bd6759. Many thanks. Now that leaves me with a dilemma

I know the bank rate used for the currency deals but propose using BoE daily rate for the share transactions. I assume HMRC want consistency so one way to achieve this is to use BoE daily rate for both share and currency deals and ignore the banks dealing rate and HMRC monthly average

The other is to use the monthly average for both share and currency deals and ignore the banks dealing rate and BoE daily rate

Basically I don’t care. Just want the choice to be accepted without discussion/queries/ further calculations

What would you go for?

FigNewton
Posts:44
Joined:Fri May 06, 2016 5:05 pm

Re: Exchange rate and CGT calculation

Postby FigNewton » Sat Oct 23, 2021 1:22 pm

Since they do not define exactly where taxpayers must find the fx rate, HMRC is allowing taxpayer to choose any reasonable rate, provided it is done consistently. So when a broker includes an exchange rate in the contract note (AJ Bell, Trading 212) then I calculate my gains using that rate. When I sell a US share within a USD account without immediate currency conversion back to GBP (Interactive Investor, IBKR) then I figure the GBP amount using the Googlefinance() function in Google sheets to pull up for me the fx rate for the date.

Many brokers now like to boast of being "commission free", but then they have fx charges of 0.15%, 0.35%, 1% or even 1.5%. It would be better for tax if charges were organised the other way around, since commission is tax deductible from profits.

HMRC web page says:

You can deduct certain costs of buying or selling your shares from your gain. These include:

fees, for example stockbrokers’ fees


When AJ Bell charges 1.5% to convert USD to GBP, and I have no choice but to pay that cost when I use their platform, is this not a "broker fee"? It is certainly a profit-making activity for AJ Bell, as the real cost of providing the currency exchange is much less. Trading 212 charges 0.15% for fx and has said that they expect to make a profit on that small charge as their true cost is much less.

bd6759
Posts:3770
Joined:Sat Feb 01, 2014 3:26 pm

Re: Exchange rate and CGT calculation

Postby bd6759 » Sun Oct 24, 2021 11:03 am

The cost of converting money is not a cost of disposing of the asset.


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