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BKLTax welcomes the changes to the taxation of foreign currency bank accounts announced in Finance Bill 2012 but also warns that prompt action may be appropriate in some cases.

Introduction

At present, bank accounts denominated in a currency other than Sterling ("Foreign Currency Bank Accounts" or FCBAs) are chargeable assets for UK CGT purposes. This means that in principle a capital gain or loss needs to be computed every time money is withdrawn from an FCBA unless the withdrawal is solely to fund personal expenditure (including property purchase or maintenance) outside the UK.

As readers will imagine, the burden of performing a CGT calculation every time money is withdrawn from an FCBA is almost always hugely disproportionate to the tax at stake, and we are delighted that from 6 April the tax charge is being abolished: from that date individuals will not be subject to tax on gains arising on withdrawals from FCBAs.

But Claim Losses Where Appropriate

By the same token, losses on such withdrawals will cease to be allowable losses, though any losses realised before 6 April 2012 and unused at that date will continue to be available for future use. This means that clients who are sitting on FCBAs whose Sterling value has fallen below original cost may wish to consider crystallising the loss before 6 April by withdrawing funds from the account.

A word of warning though: this is likely to be worthwhile only if the transactions on the FCBA are relatively few or if the balance on the account is large: in other cases the complexity of the CGT calculation is likely to mean significant time and potential expense outweigh the benefit.