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:
- Acquisitions/disposals of assets valued in foreign currency
- Receiving dividends/interest payments denominated in foreign currency
- 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)
- 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).
- 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?
- 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?
- 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?