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Where Taxpayers and Advisers Meet

Calculating CGT on foreign currency balances & related transactions

RightAngle
Posts: 4
Joined: Mon Apr 08, 2019 4:21 pm

Calculating CGT on foreign currency balances & related transactions

Postby RightAngle » Mon Apr 08, 2019 4:25 pm

Hi all,

I've acquired some information on this topic through searching this site and was hoping that I could ask a few questions to complete my understanding. There's a little bit of an income tax question too but it's mainly about CGT so I put it in this subforum.

I've had three types of foreign currency transactions:
  1. Acquisitions/disposals of assets valued in foreign currency
  2. Receiving dividends/interest payments denominated in foreign currency
  3. Payments made as part of sole trading activity that never got off the ground (I paid foreign programmers to develop an app, payments in USD, but the market was not there in the end so I abandoned the project)
And I have the four following questions:
  1. When calculating the GBP value of each acquisition/disposal/income receipt, should I always be using the spot rate at the close of that day? Or is it appropriate to use a monthly average, or some other average? This is particularly relevant for one account where I have lots of tiny interest payments received almost every day throughout the year (p2p lending through bondora).
  2. I understand that the foreign currency balances themselves are chargeable to CGT when not held in a bank account or for personal use. I am not sure whether my payments to the overseas programmers fall into this category or not. They were certainly not for personal use as I intended at the time to create a profitable business venture, even though that did not work out. I made the payments through Transferwise, where I sent a GBP amount to a local UK bank account and then Transferwise sent the corresponding USD amount to the programmers: would this count as an acquisition and then disposal of foreign currency for CGT purposes, or just a GBP payment?
  3. Furthermore, I assume that any dividends/interest income received in foreign currency would count as an acquisition of foreign currency on that date? Eg I receive $100 on a day with a £1:$2 exchange rate; I've received £50 of dividend income and then acquired $100 for £50 with respect to CGT?
  4. Finally: am I correct in understanding that when calculating CGT I have to use the 'share identification rules' method? Ie where disposals are matched off first against acquisitions on the same day, then in the next 30 days, then against the section 104 holding? Or is there an easier method - I've heard reference to the 'part disposal' method which sounds like just using a section 104 holding and ignoring the 'same day/next 30 days' rules. Is there a software package that would do the matching off for me?
Thanks in advance for any advice!

maths
Posts: 7562
Joined: Wed Aug 06, 2008 3:25 pm

Re: Calculating CGT on foreign currency balances & related transactions

Postby maths » Tue Apr 16, 2019 3:15 pm

Foreign currency bank accounts no longer constitute chargeable assets for CGT purposes. Thus, withdrawals from such accounts (which technically constitute a disposal) do not give rise to any CGT charge open any sterling gain which arises.

Foreign income (eg dividends) are subject to income tax on the £ equivalent converted at the date the income arose (basically date of receipt).

RightAngle
Posts: 4
Joined: Mon Apr 08, 2019 4:21 pm

Re: Calculating CGT on foreign currency balances & related transactions

Postby RightAngle » Thu Apr 18, 2019 4:13 pm

Foreign currency bank accounts no longer constitute chargeable assets for CGT purposes. Thus, withdrawals from such accounts (which technically constitute a disposal) do not give rise to any CGT charge open any sterling gain which arises.

Foreign income (eg dividends) are subject to income tax on the £ equivalent converted at the date the income arose (basically date of receipt).
Hi, thank you for the response, it is much appreciated.

Regarding foreign income: if I have lots of small receipts over a year, is it correct to use the spot exchange rate at the date of payment or the average over a weekly/monthly/annual period? Or do I get to choose?

Regarding CGT: I am aware that foreign currency bank accounts are no longer chargeable assets. However many of my FX balances for investment were held in an online brokerage account, not a bank account, which I assume would constitute a chargeable asset for CGT purposes. So when it comes to calculating CGT I am mainly concerned with the acquisition/disposal of foreign currency I did in my brokerage accounts in order to buy foreign shares/funds/etc. In these calculations, do I have to apply the full 'share identification' rules (where I match disposals off against acquisitions on the same day/next 30 days/then the s.104 holding) or can I apply a simpler method here?

Thanks again!

RightAngle
Posts: 4
Joined: Mon Apr 08, 2019 4:21 pm

Re: Calculating CGT on foreign currency balances & related transactions

Postby RightAngle » Thu Apr 18, 2019 5:48 pm

PS: Thinking about it a bit more, if FX balances in online broker accounts were chargeable to CGT but bank accounts are not, then depositing USD from a bank account into a brokerage account would constitute an acquisition of USD, right? And withdrawing the USD back to a bank account would constitute a disposal?

maths
Posts: 7562
Joined: Wed Aug 06, 2008 3:25 pm

Re: Calculating CGT on foreign currency balances & related transactions

Postby maths » Fri Apr 19, 2019 1:04 pm

The matter is not straight forward.

As you state gains in sterling on withdrawals from foreign currency bank accounts do not give rise to any CGT charge (post 2012).

Where mon its are held in a brokerage account it becomes necessary to ascertain the nature of the relationship between you and the broker.

1. If that relationship is one of creditor/debtor (in essence the broiler holds the monies as a bank) then no CGT on withdrawals.

2. If on the other hand the broker acts as a nominee holding the monies on trust then withdrawals will precipitate potential CGT charges.

In many cases 2 above applies.

RightAngle
Posts: 4
Joined: Mon Apr 08, 2019 4:21 pm

Re: Calculating CGT on foreign currency balances & related transactions

Postby RightAngle » Wed Apr 24, 2019 5:04 pm

The matter is not straight forward.

As you state gains in sterling on withdrawals from foreign currency bank accounts do not give rise to any CGT charge (post 2012).

Where mon its are held in a brokerage account it becomes necessary to ascertain the nature of the relationship between you and the broker.

1. If that relationship is one of creditor/debtor (in essence the broiler holds the monies as a bank) then no CGT on withdrawals.

2. If on the other hand the broker acts as a nominee holding the monies on trust then withdrawals will precipitate potential CGT charges.

In many cases 2 above applies.

Thank you.

If I assume 2 applies, how would you go about calculating the gain? Is it necessary to apply the full share identification rules or can I make use of a simplified 'part disposal' method, or even more simplified a method where all the disposals for the year are aggregated and treated as one disposal?

Furthermore, if I have USD balances in two separate brokers, should I consider each one as a separate asset or aggregate them and treat them jointly?


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