Capital Gains on shares in foreign currency

roofusb

First time poster - hoping someone can help me with a query. I have a number of shares held in a US company, which are in US Dollars, bought about 2 years ago when the exchange rate was around $2 = £1. I'm now looking to sell the shares, and while they're worth about 10% less in US Dollars than I paid for them, they're about 10% more in UK Pounds.

My question is, how does the 'gain' need to be treated for CGT purposes? I've been suggested two methods, one of which is much better for me!

1. Calculate the gain in US Dollars (actually about $10,000 loss), and convert this to UK Pounds (would give about £6k 'loss', i.e. no CGT to pay)

2. Calculate the gain based on the cost of the shares in UK Pounds at the time of purchase, and the sale value in UK Pounds at the time of sale (would give about £5k gain, i.e. CGT to pay as I've already used up this year's allowance)

Obviously not expecting any official confirmation, but any advice greatly appreciated.

Pumpkinface_2

Method 1 ignores the impact of the gain on foreign currency which you used to buy USD to buy the shares in the first place and then will presumably change back to GBP after the transaction.

If you consider that FX gain together with a USD loss on share value, you will I am sure end up more or less back where you would be if you do the calc in GBP, i.e. overall you have made a gain. An FX gain offset by a loss on share price.

Chocforever

Your option 2 is correct. Each part of the CGT calculation must be converted to Sterling using the spot rate.

CF

roofusb

Thanks both for the info.

So if there is apparently separate CGT treatments for the (1) the share sale and (2) the FX gain on the currency conversion, then could I in theory:

1. Sell the shares now but keep the currency in USD, giving a capital loss of around $10,000, and then off-set the GBP equivalent of this amount, £6k or so, against this year's other capital gains,

2. Convert the USD to GBP after April at the prevailing rate, therefore using next year's CGT allowance?

Chocforever

I wasn't aware of any personal tax relief for currency losses - perhaps Pumpkin will clarify whether the point above related to the net economic position or the tax rules. In Sterling terms, you have gained money through this investment and it is the share investment that is attracting tax.

Currency held on personal account is outside the scope of capital gains tax.

Pumpkinface_2

roofusb wrote: »

Thanks both for the info.

So if there is apparently separate CGT treatments for the (1) the share sale and (2) the FX gain on the currency conversion, then could I in theory:

1. Sell the shares now but keep the currency in USD, giving a capital loss of around $10,000, and then off-set the GBP equivalent of this amount, £6k or so, against this year's other capital gains,

2. Convert the USD to GBP after April at the prevailing rate, therefore using next year's CGT allowance?

I was not meaning to say that the two should be treated separately; I was explaining in theory what is causing the major difference between the method 1 loss and method 2 gain that you mentioned. It is my view that you should use method 2.