exchange rates - how and what date?

Barry_Bear

Getting things ready for doing the tax return 

For taxable gains on investments bought and sold in foreign currencies with sale proceeds held in foreign currencies, what exchange rate dates are used for the GBP calculation for gains and losses?

E.g. purchased 10,000 for 20,000 SPD and later sold 1,000 for @ for 3000 SPD = 1,000 SPD gain on sold units 

Is the gain:
1. Sale price in GBP @ SPD FX rate 0.60 on the DATE OF SALE  minus Purchase price in GBP @ SPD FX rate 0.55 on the DATE OF PURCHASE =  GBP gain/loss
2. Or is the GBP gain 1,000 SPD @ FX rate 0.55 on DATE OF SALE
3. Some other?

bowlhead99

Closest to 1. , except  you seem to have reversed the terms by accident... Why would you be looking at sale price on rate at date of purchase and  purchase price on rate at date of sale?!

Your gain is calculated by what the investment cost in pounds against what the disposal proceeds are worth in pounds.

In this case it looks like you spent SPD 2 to buy each unit. Forget trying to calculate gains in SPD. You know the purchase cost was SPD2 per unit and you know the equivalent of that in pounds (at a 0.60 FX rate, which was the only relevant rate when you were buying) is GBP1.20.

So your shares cost the equivalent of £1.20 each, and the fact that you spent £1.20 each to buy them is not something that will change just because FX rates might change over time. The allowable cost is £1.20 a share.

Then you sell shares and get SGD3000 for the shares, which is (at the rate at the date of sale, which is the only rate that can tell you what the sales proceeds are worth in GBP) equivalent to £1650.

So, you know you have sales proceeds of £1650. To work out the gain, see what the things you've just sold, cost you to buy: 

What did you sell? 1000 shares.
How much did the shares cost you to buy? £1.20 each, so £1200.

So how much gain have you made from a UK tax perspective? Proceeds £1650 less cost £1200, equals gain £450. That's the relevant bit for the UK tax man.

How much was the gain in SGD? Not relevant. What happened to FX rates? Not relevant. Just obtain a GBP figure at point of sale and compare it to the GBP allowable cost from point of purchase.

Barry_Bear

Thank you, very clear now.
(I noticed the error you pointed out after posting and edited.)
Thanks for the detailed reply!

Mr.Saver

Just add a remainder, foreign currencies are also taxable, so gains or loses from foreign currency transactions should also be included in the capital gains calculation. More specificity, buying a share in foreign currency will be treated as disposal of the foreign currency, and sell a share in foreign currency will be treated as acquire of the foreign currency. See the rules and an example.