CGT: unreported loss from 2019/20... but is it a loss?

CharlesLincs

Long story short, I've promised to help a friend of mine with her SA tax return. Big mistake :-) but she's French (though tax resident) and the taxman speaks no French. So I'm hopeful that I've disentangled most of the issues, mostly to do with some Excess Reportable Income and a couple of non-reporting funds she holds (and which I have flagged for her as potentially problematic). However, one problem has popped up now. She has last year sold two investments with some nice gains (one was in shares, the other a company bond so both fall under the CGT regime) which will push her over the CGT exemption for 2021/22. So we've looked into the years before and she has indeed a couple of (unreported) losses for 2019/20 and though late, I assume she can still declare these within the four year rule with her 2021/22 tax return.

The problem I am facing is that one of those "lossy" investments was a thing that I have no idea how to deal with. It seems to be a sort of leveraged product, not unlike a covered warrant, but with a further factor (?) element, i.e. moving with the underlying but multiplied by a certain factor. The ISIN is DE000DX8S152 and I've found this on a few websites including a few PDFs, alas all in German. The text says "DE000DX8S152 - Index-Zertifikat bezogen auf den Euro Bund Future Short Index Faktor 15". Apparently the underlying is the 10yr Euro Bund (German Euro bonds, similar to our gilts) and this thing leverages the moves of the underlying by a factor of 15.

Anyway, back in 2019 when she sold that investment, this produced a pretty big loss which would be come in handy now (possibly also in the future)... but given the rules around off-shore investments I am not sure we can include that loss in the calculations as I am not clear whether this sort of thing falls under the CGT regime.

Any help or a link to the HMRC site or any other source highly appreciated. Thanks.

Jeremy535897

The shares are likely to be subject to capital gains tax. Qualifying corporate bonds are exempt from tax:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg53703

Details of what a QCB is can be found in HMRC's manual:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg53702 et seq.

The German investment you describe is probably subject to capital gains tax as a future. See:
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg56004 et seq

For the claiming of capital losses, see:
https://www.gov.uk/capital-gains-tax/losses

If the investments are not denominated in sterling, you will need to convert the purchase price to sterling at the spot rate applicable to the time of acquisition and convert the sale price at the spot rate applicable at the date of sale:
https://www.pricebailey.co.uk/blog/forex-rate/

CharlesLincs

@Jeremy535897 Thanks for this list of links. I've never heard of "qualifying corporate bonds" before, so I looked through those pages... from what I've read this doesn't apply here as the bond I referred to (and the others my friend held or holds) is/was denominated in EUR. Nevertheless, good to know this and to keep it in mind. As to the way to calculate gains and losses for off-shore investments not denominated in GBP, I've read more about that than I thought possible :-) but I am sure there are still holes in my understanding. Then again, my friend has posted a few questions re these things on some HMRC forum and from the (sometimes contradictory) answers she's received -- from HMRC staff, no less -- she's got a feeling that they sometimes also don't know left from right.

As to the main question, I also think this investment is probably subject to CGT but I have learned to be careful when the words "HMRC" and "probably" appear in one sentence. The point where I became a bit nervous came when I read that spread betting gains and losses are NOT subject to CGT at all and although further investigations seemed to show that this is in no way anything to do with spread betting... if there's one exception, there may well be others.

Anyway, I assume HMRC will check the tax return and the gains and losses we include and if they say this doesn't fall under CGT rules at worst she'll have to pay CGT for everything above the exemption. Well, she made the money so there's no point in arguing.

Last but not least, for those that need this here's a site my friend has found with EUR/GBP rates back to 2010 (I am not allowed to post links yet, so...):
www exchangerates org uk and go to EUR-GBP-exchange-rate-history.html

Again thank you.

Jeremy535897

Yes, a corporate bond held by an individual that is not denominated in sterling is not a qualifying corporate bond, and so subject to capital gains tax. See https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg53707

You cannot rely on HMRC call centre staff to advise correctly on these complex areas. Nor is HMRC likely to "check" the tax return you submit.