Using the correct exchange rate

jennifernil

Last tax year, 29th October, OH sold some shares given to him by his mother many years back. These shares are in a Norwegian company. The proceeds were paid into an account he has in Norway and are still there. Interest on this account is declared here for tax purposes.

As he did not have the money sent here, he is unsure how to work out the exact proceeds in £s of the sale for CGT purposes in UK. The gain is slightly over his allowance, so there will be CGT to pay.

He receives a monthly State pension from Norway, paid here in £s on the 20th of every month, can he use the exchange rate he was given for that pension in the same month that the shares proceeds were received? This does change every month.

Or should he use a rate somewhere between what it was on 20/10 and 20/11 ?

Or is there an "official rate" he must use? And if so, where do we find it? I have only been able to find an average for 2013, and monthly rates for Customs and VAT purposes. Both of which were significantly different from his "pension rate". (in HMRC's favour)

purdyoaten

Does this help? Use the historical look up tab - top right.
Also, when entering the web address, be careful to include the hyphen in x-rates, otherwise you will access a !!!!!! site!

www.x-rates.com

I get 9.458 krone to the pound on that date.

00ec25

technically he should use the spot rate on the date of original gift and subsequent sale of the shares
http://www.hmrc.gov.uk/manuals/cfmmanual/cfm64180.htm

in the absence of anything else consider using the Bank of England spot rates noting the very clear caveat they are not "official" rates
http://www.bankofengland.co.uk/boeapps/iadb/Rates.asp

for 29 Oct 13 that gives 9.4529

if he wants to be uber safe then HMRC draws its own data from the FT http://www.hmrc.gov.uk/exrate/index.htm and you can download the "cross currencies" pdf from the data archive on the FT website http://markets.ft.com/research/Markets/Currencies
which shows the rate as 9.453 (the FT effectively drawing its data from the Bank of England thereby squaring the circle :wall: )

take your pick!!!

jennifernil

Thanks to both of you, hope someone can help with the next problem too!

The shares were originally purchased by his father in 1956 for kr 200. The company was at that time the first electricity generating company in the area and was funded by those interested in getting electricity in their homes buying shares.

The shares were given to him by his mother in June 1986, but were not listed on the Norwegian stock market until much later on. We therefore have no idea of the value of them in 1986.

The first possible value we have is from a shareholder report dated 1997, which gives some figures for 1995 and 1996, but we are not even sure if it relates to these shares as there were "A", "B", and "C" shares. His are "C" shares and carried no voting rights apparently.

Later, from 1999, the shares have been valued for Norwegian tax purposes, so we have the following figures......

1995 kr 4426
1996 kr 7896

1999 kr 11655
2002 kr 16084
2008 kr 51571
2009 kr 41167
2010 kr 50931

We have more recent values, but I do not have them to hand now. They have risen considerably as there was a buy-out by a competitor and one time offer too good to refuse, on the condition that the whole holding was sold at the time, hence the CGT return.

Dividends were only paid in the last few years, so we had no idea the shares would be worth so much!

So can anyone shed any light on what value we should put on these shares at the time they were given to him?

jimmo

You might consider HMRC’s Post Transaction Valuation service using form CG34.
http://www.hmrc.gov.uk/forms/cg34.pdf
It does require you to put forward your own valuation for checking but it does not have to be a professional valuation. Your own opinion is fine.
It also requires you to submit evidence to back up your opinion or reasons why you cannot.
http://www.hmrc.gov.uk/manuals/cgmanual/cg16603.htm
It seems to me that you have perfectly valid reasons for any gaps there may be.
So what value should you put forward?
You have a 1995 value of kr4426. Using HMRC’s average exchange rate for the y/e 31/12/95 (9.9957) gives a sterling value of £443.
Would it be reasonable to assume that the 1986 value will have been less than that?
If so we have father’s original purchase price in 1956, more or less £20, the 1995 value of £443 and we are looking for something between those.
Looking at the tax consequences, for a higher rate taxpayer an acquisition value of £443 compared to an acquisition value of £20 would save tax of (£423 @ 28%) £118.44. For a basic rate taxpayer it would be (423 @ 18%) £76.14.
If I were you I would propose a 1986 acquisition value of £400.
Then its down to each side’s perception. I seriously doubt that HMRC would judge it to be cost effective to argue against you but if they did the procedure requires them to give their own figure. If that happened would it be worth your while to argue?

jennifernil

Thanks, jimmo, for a well reasoned answer.

One small correction, though I do not think it changes anything. In 1956 there were around 20 kroner to the £, so original purchase price would have been in the region of £10, it was the late 60's if I remember correctly when the £ was first devalued.

Yes the shares would have been worth less in 1986, possibly not even as much as £400.

OH has also had to submit details to the Norwegian tax people, he has sent them the scant info he has, so possibly they may decide a starting value for 1986 and we can use that.

His 2 sisters also got some shares, and I would think that there could have been quite a few people in the area still holding these old shares, so others in the same boat.

Will be interesting to see what happens, fortunately we have some time in hand as the Norwegian return had to be in by the end of April, so we should hear what they have to say before he has to submit here.

However, as he is resident here, they should not be taxing this gain, so they may not bother with the value. In which case he can find out what happened in his sisters' cases and see if that is of any help.

I see he has to submit the CG34 at least 2 months before his filing date, which for his paper return is 31/10 (paper return....long story!) so I will get him to fill it in, just in case, and our daughter can send it in if necessary, as we are soon off to Norway for the summer.

jimmo

Thanks, jennifernil. The open market value of unquoted shares is normally a question of opinion and, by using the CG34 procedure, your husband has the opportunity to express his opinion to HMRC without risking an Enquiry into his Return and potentially being charged a penalty if he gets it wrong.
In those circumstances I think he may as well aim high, without being ridiculous, for the most tax efficient outcome. Hence my suggestion of £400.
You may see it differently but the one thing you can be sure of is that if your husband undervalues his shareholding HMRC will accept and he will pay more tax than he needs to.
I think your husband should submit the CG34 sooner rather than later for 2 reasons:
1) Unquoted shares tend to be valued per shareholding rather than per share. In a simple example a majority holding in a small company is proportionally worth a lot more than a minority holding because the majority controls the company.
2) Whilst I can’t speak for today’s HMRC, in my days not a lot of HMRC people would have been able to recognise a CG34 let alone know what to do with it. They didn’t exactly land on my desk very quickly.
No need to explain again why your husband has to submit paper Returns. Whilst I can’t recall the details I do remember not being able to help.
As a sort of afterthought, you seem to be the forum’s No1 expert on Norwegian tax, and whilst it wouldn’t affect what I can contribute, you might want to name the shares, just in case.

jennifernil

Thanks again. He has printed off a CG34 and will fill it in this week. I had thought we would give the Norwegians a few weeks to see if they come up with a value, but as you say, it is better to give HMRC as long as possible.

He likes your idea of a £400 value, naturally, but as he is a standard rate taxpayer, a lower value will not make a huge difference.

We don't get to his older sister's house until late May as we are stopping off along the way in various places, so if she has heard nothing by then, then we could send in the CG34. That would leave almost 5 clear months for HMRC to investigate.

I don't know about being any sort of "expert" on Norwegian tax! It seems every bit as complicated as here, but I am learning.

The company in question was Sjofossen Energi, there should be a / through that first "o", but I cannot find the correct character on my keyboard.

jennifernil

A quick update......some good news and some not so good.

A cousin, who was also given some shares at the same time by her mother, has just got in touch, and she has managed to establish a value in 1986, so that will save a lot of hassle.

The not so good news is that the value of the holding then was only in the region of £140.

So there will be a bit of tax to pay.

Just have to check the historic exchange rates on the relevant dates and work it out exactly now,