HMRC "Nudge" Letter for Foreign Income and Degiro

AustinZ

I think this has been mentioned before, Degiro adds up whole lot of what they call Money Market conversions into actual share disposal and report that as Gross Proceeds, as part of their Tax Exchange Information and Common Reporting Standard (CRS) compliance - totally wrong of course..., no other broker does that.

So as to my case, I got the letter and called up HMRC, the nice chap quickly told me the reason for the letter is, they received two total values for 2020 from these two companies in Neatherlands:

1)- Degiro
2)- FundShare Fund Management BV    (this was their Money Market processor, and until July 2020 they had individual user accounts, after that went to one nominee account managed by Degiro, I thought maybe that is why they had both reported, maybe... ! Since Jan 2022 Degiro was taken over by some bank that does their Money Market operation as well. I called this company to get this info)

Tax guy said he could not say who reported what, but had one total which was my dividend and I had reported that in my self-assessment correctly, and another of ~£295k ...!?  No idea what that is, I checked Degiro 2020 statement again, and saw they reported total disposal of £99k.

Now that was the Covid year and I traded a lot as shares were bouncing up and down, but I had no Capital Gain to report, the total was below my allowance. However, I did not put the £99k in the self-assessment as total disposal (as it was > 4x allowance) and left all empty - can not remember why, maybe didn't know or forgot. This might have also caused more suspicion for the letter ! So I need to deal with this now, is it possible to add and update 2020 self-assessment now ...!? (it will not change taxes due).

I did tell the tax guy that Degiro reports wrongly and adds Money Market conversions, but he didn't want to know, said we are not tax advisers and I need to clarify this. I contacted Degiro, but they say all is correct and they report according to CRS, blah blah..., and they add all the Money Market conversions too... !?
 
I now asked them to send me their exact calculation, because even doubling £99k does not give £295k (maybe they add buy+sales+conversios... , no idea !?). Maybe then I can forward that to the Tax office and try to convince them it's all okay...

I was also away and now a bit late responding to the HMRC letter, but I think I should tick the option that says all is okay and reported in self-assessment, don't you think ? He said I must do it quickly or they may start investigation...!!!

Any advice is welcome, and of course I am thinking of closing my Degiro account, although they have a good platform and tick all the boxes, this habit of reporting like this is just not going to work.

Cheers.

masonic

It's not wrongly reported, the previous thread revealed that they actually sweep up and invest cash balances in money market funds, which are financial instruments that genuinely count towards disposals when they are sold (either to purchase an explicit investment, or withdraw cash from the platform). Though no disagreement that it's highly unusual and unnecessary. The impact is that it will tend to more than double the disposals you would have made if cash was left as cash on the platform. In that case, the OP did not self-assess, so it wasn't of any consequence (just required a declaration that gains did not exceed allowance).

You can go back and amend a previous return, and since there is going to be no unpaid tax resulting from that but you are now being asked to confirm that your old return is correct, perhaps you should do so. In my experience (going back to add some nil rate dividends I accidentally missed), nothing happened as a consequence of my correction. What you need to do first is extract an actual figure from Degiro that corresponds to what they have reported to HMRC, as there is no point amending if there still remains a discrepancy.

AustinZ

I have now downloaded all the 2020/21 transactions and went through them for hours, adding up all the numbers. All the share sales and dividend received appear as Money Market BUY and all share buys appear as Money Market SELL. Plus loads of other rubbish as penny charges and FX charges etc. - it is really a mess to look at. And this is all not in proper order and done on different days/times.

Interestingly if some shares sells and buys are on the same day, this does not reflect on Money Market, as the money goes there kind of at the end of the day !

I even found a completely unnecessary £11k BUY + exact same amount of SELL on Money Market transactions. Adding to totals for nothing.

However, after all this said and done, I still have about £100K of share sales and buys (interestingly I just re-invested everything) and similar amounts of Money Market BUY/SELL (well, close to that, with a few thousands for dividends and charges etc.)

So adding share sale AND Money Market BUY (or SELL, whichever)  will still only generates £100k * 2 = £200k. So no idea where that £295k comes from and how was that reported - as I said, I think those two companies made a mistake and both reported... !!!?

It's a monumental mess, Degiro is not recommended by me, stay away....

masonic

Hmm, unless you've also made deposits/withdrawals of cash that were swept in and out of MM that could make up the other £95k, then that doesn't make sense at all. In the other thread, we were eventually able to figure out how the reported figure was arrived at. What a mess!

AustinZ

Degiro now also sent their records that they used to calculate Gross Proceed, I am consolidating it now, they report in EURO, so need to take that into account (HMRC gave me value in £, so not sure what exchange rate they used... !?)

Could you send me the link to that thread, I have read a few but maybe missed that one..., thanks.

masonic

The most relevant posts from that thread are these:

D924 said:

ivormonee said:

I've looked at Degiro's platform and it seems to suggest that you can hold multiple currencies in your account with them. There doesn't seem to be a mention of having to keep these in any money market funds (such as, presumably, a money market OEIC, unit trust or ETF). I would assume you chose to invest cash (in USD and GBP) into such funds rather than keeping it in the form of just cash in your account. Please correct me if I am wrong in this assumption.

Degiro's explanation for this is that they do not have a banking license and therefore cannot hold customers money directly, so all customers money is invested automatically, by default, into the money market funds appropriate for the currency.

https://forums.moneysavingexpert.com/discussion/comment/79545214/#Comment_79545214

D924 said:

The broker holds all currency in money market funds. As the GBP is held in a GBP money market fund it seems probable that any of the following actions will count as a disposal, since in all cases a money market fund (GBP, USD, or any other currency) is disposed of:

1. Withdrawing GBP from the account

2. Buying shares, in any currency

3. Any currency conversion

It's pretty clear now that I've completely screwed up by not reporting these money market fund disposals in the 2019/2020 tax year regardless that no tax was due. 2018/2019 and 2017/18 are also most likely over the 4x limit for the same reasons.

https://forums.moneysavingexpert.com/discussion/comment/79544203/#Comment_79544203

I suppose the above is an example of an unknown risk that is taken on by dealing with a non-UK domiciled financial services company. In the UK, brokers can hold client money under CASS rules, but an entity operating in NL (apparently) must abide by different regulatory requirements. No FSCS protection (and a much lower compensation limit under the Dutch scheme) is a more commonly understood difference.

AustinZ

I have now consolidated all the numbers, Degiro reported from 1 Jan to 31 Dec 2020 - I was rather looking at UK Tax year 2020/21.

At the beginning of 2020 from (1 Jan to 5 Apr) when the market crashed and everyone was selling, I went on a crazy buying spree... !!! (crazy I know). These buys are all translated into Money Market withdrawal "Sells" and added up and were reported as disposal... !

Also they reported in Euro, the number HMRC gave me was in £, but I think using a generic exchange rate, if I use exact rates, I get slightly different number, but close enough. Degiro also did an error of £11k for some reason, entered the money in the money fund twice and then had to remove it immediately... ! But all is shown on their transaction records.

Anyway, now I need to explain all this to HMRC. One quick question, from what I recall, I can offset any Capital Gain from losses of previous year (all from share dealings) - UK or Foreign, is that correct ? I have also not declared that loss, so need to update two self-assessments 2019/20 (with loss) and 2020/21 (with above) - my holiday festive season all set now... !

masonic

Yes, you can deduct unused losses from your gains if the latter are above the allowance. I don't believe you'd need to add the capital gains pages to prior returns to include the loss in the year of the relevant disposals, as there is no requirement to declare losses straight away and you have 4 years to claim them.

AustinZ

Thanks, that's good to know I don't need to declare it on the year.

Also if I have gains of say 9.5k one year and loss of 14k the same year, I can keep the full 14k loss to use for following year, because my gain (9.5k) is already lower than my allowance so I don't need to use that loss to offset it, correct !?

EthicsGradient

AustinZ said:

Thanks, that's good to know I don't need to declare it on the year.

Also if I have gains of say 9.5k one year and loss of 14k the same year, I can keep the full 14k loss to use for following year, because my gain (9.5k) is already lower than my allowance so I don't need to use that loss to offset it, correct !?

No. You have to use 9.5k of the loss against that year's gain, and only have 4.5k to carry forward.

Drtkd

This looks like such a mess! What broker are you moving to now from Degiro? Got an email saying they will become a full FCA protected broker this year, which (I think…) will avoid a mess like this. I really do not want to spend my holiday doing something like this though!