Capital Gains on foreign Shares

neatz

Afternoon

I am considering investing in shares on the NYSE via Degiro and i am curious as to how i would work out my Capital Gain each year.

With degiro you transfer GBP into the account, then exchange your chosen amount into which ever foreign currency you require (in my case USD) and then trade in USD. For the time being i do not intend to withdraw any of my proceeds. Whatever i gain in dollars will be reinvested as soon as possible and will therefore remain in USD.

I have seen information that suggests in such a case the CGT would be worked out using the amount of GBP originally invested, subtracted from the amount of GBP received at the time the USD is changed back into GBP. Since i am likely to continue reinvesting without changing the money back into GBP for a number of years yet, the above would mean that i wouldn't pay CGT regardless of how many USD i make over the next few years which to me doesn't seem likely.

I have also seen some suggestion that when you buy the US shares you convert the cost in USD to GBP according to the exchange rate at the time of buying and then convert the selling price from USD to GBP using the exchange rate at the time of Selling and then take one from the other. Again, i am worried that this may not be the correct way to do it as realistically, i will not be converting the USD to GBP each time therefore the value of USD/GBP would not be as it will when i finally do change it back to GBP.

Any advice would be appreciated.

Thank you

xylophone

https://www.gov.uk/government/publications/foreign-tax-credit-relief-capital-gains-hs261-self-assessment-helpsheet

Anything here to help?

grey_gym_sock

neatz wrote: »

I have also seen some suggestion that when you buy the US shares you convert the cost in USD to GBP according to the exchange rate at the time of buying and then convert the selling price from USD to GBP using the exchange rate at the time of Selling and then take one from the other.

that's the correct answer.

xylophone wrote: »

https://www.gov.uk/government/publications/foreign-tax-credit-relief-capital-gains-hs261-self-assessment-helpsheet

Anything here to help?

that is about what happens when you are charged CGT in another country, but the US will not be charging you CGT when you buy US shares (unless you have other connections with the US).

bowlhead99

neatz wrote: »

I have seen information that suggests in such a case the CGT would be worked out using the amount of GBP originally invested, subtracted from the amount of GBP received at the time the USD is changed back into GBP. Since i am likely to continue reinvesting without changing the money back into GBP for a number of years yet, the above would mean that i wouldn't pay CGT regardless of how many USD i make over the next few years which to me doesn't seem likely.

Generally if you're making a purchase and later sale in foreign currency, HMRC want to know what were the proceeds in GBP and what were the costs in GBP and the difference is the gain you made.

If you were paying for them out of a GBP bank account and receiving the proceeds back into that GBP bank account, it would of course be very easy, because you could see the numbers in pounds.

If you weren't, because you already had dollars in a dollar bank account or dollar broker account, and were using those dollars to fund the investment, you should just use the spot rate on the funding date and the receipt date to get the values of what those respective payments and receipts were "worth" in GBP - even if the broker is not physically taking pounds off you or giving you pounds back.

In some cases however, using the exact spot rate could give you a bit of a funny result. Like if you are buying an investment of Tesla shares for $1400 and in order to buy it, you spend £1000 to buy the $1400 a few days before you need to settle the trade: you know that your "cost" of buying that company was £1000, even if a published spot rate in the Financial Times or other reputable source on the purchase date implied it only coat £970.

And then next year when you sell the investment and get back $3000, you take a week or so to convert the money and receive the proceeds as £2000, but the spot rate on the trade date was 1.47 so it implies £2040 proceeds but all you get back from the broker was £2000.

In that situation, HMRC would simply accept that you spent £1000 and got back £2000 and made a gain of £1000, even though the tables reported by the currency markets imply you made £1070 of profit on a £970 investment. What they care about is what net proceeds you actually got and what total amount you had spent to get that was. The difference between those two numbers (£1000) is the pound sterling realised gain and that's what they seek to tax you on, because they acknowledge that the process of moving money to and from foreign currency to carry out your trade is inherently costly and you didn't really have a £1070 gain: you only had a £1000 one and can prove it.

So, they're happy to take the GBP actual proceeds against GBP actual costs for the purpose of your calculation. But as you correctly suggest, this doesn't mean that if you don't ever bother to convert the proceeds to GBP, and keep re-investing them as dollars, you will never have any taxes, regardless of how much gain you make. Of course you owe taxes on the gain in the year that you make it. If you don't know the sterling costs and proceeds to make the calculation for each line of stock that gets sold, simply use published spot rates for the relevant day, to calculate a number which is a fair proxy for the actual sterling profit.

If you're looking at using "spot rates" for those relevant days, you should use the regular published rates, and not some tourist rates which have massive commissions baked into them:

- If you actually do a currency conversion with a bank or fx broker or your stockbroker to help fund the trade or reconvert the proceeds, then you can use those rates that you really achieved, as per the first example, and the rates might be poor because they include transaction costs for the service of doing the conversions, but HMRC will accept them because it's a genuine cost of doing the trade;
- But if you are simply doing a succession of USD trades and not bouncing back to sterling in between, don't pretend that you are bouncing back to sterling and incurring high costs in order to get relief on fake costs you never incurred - that would be frowned upon.