Capital gain tax for foreign currency on (non-tax-sheltered) brokerage account

masonic

itwasntme001 said:

Thanks both.  Just to be clear, is the wording on FX exemption for CGT on gains/losses in the market moves in currency held in a foreign bank account or when an actual conversion takes place in the foreign account.

If I convert from USD to GBP, the USD in the foreign account is moved to GBP in the local account.  And vice versa.  So confusing what the exemption actually relates to - just the value moving due to FX (mark to market) or actual FX conversion.

The wording is that simple debts will not give rise to chargeable gains in the hands of the original creditor. So if you hold the currency for 6 months and the exchange rate improved from say 1.5 to 1.2 USD to the pound, then you moved it to Transferwise and exchanged it for a little worse than 1.2 USD to the pound then I can't see that changing anything. If you held it in some e-money account at Transferwise for a few more days, where it moved more in your favour, then that would be less likely to be within the exemption.

itwasntme001

Ok so its about intention for the conversion?  So if the conversion happenered purely to buy equities then the conversion would be CGT exempt?

So the original conversion of GBP to USD many years ago and the eventual conversion back at some point in the future, would be exempt for CGT?

The other conversions that took place was when converting dividends and sale proceeds into GBP or USD within ii and then soon after (usually 1 or 2 days, but sometimes several days or a week) buying equities with these converted proceeds.  I presume this would be exempt also or does waiting more than a certain number of days result in HMRC viewing this as FX speculation?

masonic

itwasntme001 said:

Ok so its about intention for the conversion?

I'm perplexed as to how you could have reached that conclusion based on my previous post. There are exceptions related to intention, but the main thrust of the discussion above is the circumstances in which the currency is held.

itwasntme001 said:

So if the conversion happenered purely to buy equities then the conversion would be CGT exempt?

Not necessarily. It must meet the conditions of CG78321 regardless of how it is subsequently used or intended to be used.

itwasntme001 said:

So the original conversion of GBP to USD many years ago and the eventual conversion back at some point in the future, would be exempt for CGT?

Not if by 'many years ago' you mean prior to 6th April 2012 when the new rules came into effect, and for the period since then it would need to have been held in a foreign currency bank account.

itwasntme001 said:

The other conversions that took place was when converting dividends and sale proceeds into GBP or USD within ii and then soon after (usually 1 or 2 days, but sometimes several days or a week) buying equities with these converted proceeds.  I presume this would be exempt also or does waiting more than a certain number of days result in HMRC viewing this as FX speculation?

If the foreign currency remains within a foreign currency bank account associated with an investment account and is subsequently used to purchase investments in any currency, then there would be no reasonable grounds to consider the activity currency speculation. Even if held in USD for a long time, before finally being converted to GBP and withdrawn from the provider, that would typically be explicable as normal in the operation of an investment account. You may decide to keep USD on hand for use in future purchases, and later decide you are unlikely to need it any longer and withdraw it.

itwasntme001

Ok so its about where the currency is held.

I will thus need to check to make sure that currencies are held in a foreign currency bank at ii and also transferwise?  If confirmed to be true then there is no CGT applicable to these conversions.

I'm confused what you meant by "e-money account" at transferwise in your previous post and how that differs in the CGT treatment to just simply using transferwise to convert the currency?

masonic

itwasntme001 said:

Ok so its about where the currency is held.

I will thus need to check to make sure that currencies are held in a foreign currency bank at ii and also transferwise?  If confirmed to be true then there is no CGT applicable to these conversions.

I'm confused what you meant by "e-money account" at transferwise in your previous post and how that differs in the CGT treatment to just simply using transferwise to convert the currency?

It's mainly that, but a bit of both.

Providers like Transferwise usually use e-money accounts rather than bank accounts, these would likely not fall within the exemption, see https://forums.moneysavingexpert.com/discussion/comment/81756820/#Comment_81756820

Question to ask is if money held at Transferwise is FSCS protected.

wmb194

masonic said:

itwasntme001 said:

Ok so its about where the currency is held.

I will thus need to check to make sure that currencies are held in a foreign currency bank at ii and also transferwise?  If confirmed to be true then there is no CGT applicable to these conversions.

I'm confused what you meant by "e-money account" at transferwise in your previous post and how that differs in the CGT treatment to just simply using transferwise to convert the currency?

It's mainly that, but a bit of both.

Providers like Transferwise usually use e-money accounts rather than bank accounts, these would likely not fall within the exemption, see https://forums.moneysavingexpert.com/discussion/comment/81756820/#Comment_81756820

Question to ask is if money held at Transferwise is FSCS protected.

I think there might be a solution to that: if you opt-in to Wise's "interest" option it'll be invested in a Blackrock MMF type fund so you can argue it's invested and not being held in an e-money account.

"Earn returns on GBP, EUR and USD by opening a Wise account and investing in a fund that holds government-guaranteed assets."

https://wise.com/gb/interest/

itwasntme001

masonic said:

itwasntme001 said:

Ok so its about where the currency is held.

I will thus need to check to make sure that currencies are held in a foreign currency bank at ii and also transferwise?  If confirmed to be true then there is no CGT applicable to these conversions.

I'm confused what you meant by "e-money account" at transferwise in your previous post and how that differs in the CGT treatment to just simply using transferwise to convert the currency?

It's mainly that, but a bit of both.

Providers like Transferwise usually use e-money accounts rather than bank accounts, these would likely not fall within the exemption, see https://forums.moneysavingexpert.com/discussion/comment/81756820/#Comment_81756820

Question to ask is if money held at Transferwise is FSCS protected.

I have never kept any money with TW, just used them to exchange GBP to USD and pay straight to my ii account right after conversion.

Presumably that one conversion I did a number of years back is not taxable for CGT (as there is no converting back to GBP within TW)?  The USD was invested in US shares and over the years sold and bought other US shares and sometimes converted within ii the USD into GBP to buy GBP equities, and vice versa.

So since the further conversions done was within ii and assuming currencies held in bank accounts, this is CGT exempt?

And once I transfer out the USD to TW to convert back into GBP, then this would be CGT taxable, in which case what the hell would the gains/losses be calculated as given so many transacitons?  Or is it just the gains/losses vs the original GBP to USD conversion I did a while back?

It seems all so confusing and with no clear rules from the government, I am just going to ignore it all and assume all the FX is exempt.  I doubt they will ever query mine anyway.

masonic

If you are using a service to exchange e-money at a rate equivalent or worse than the spot rate at the time the cash left your foreign currency bank account, then it is a non-issue as there is no gain.

itwasntme001

Then I am even more confused because I thought we were only talking about gains/losses when converting back already converted currency?  So GBP to USD and then later USD to GBP, with the net gain or loss.

Now you are saying for just one conversion I need to look at whether it was favourable to me or not vs. spot rate, which it definately is not.

So there are two ways that CGT might be applicable for FX?

masonic

itwasntme001 said:

Then I am even more confused because I thought we were only talking about gains/losses when converting back already converted currency?  So GBP to USD and then later USD to GBP, with the net gain or loss.

Now you are saying for just one conversion I need to look at whether it was favourable to me or not vs. spot rate, which it definately is not.

So there are two ways that CGT might be applicable for FX?

When you transfer your foreign currency out of a foreign currency bank account into something that is not a foreign currency bank account then any subsequent gain or loss is not subject to the exemption, so you have to consider the gain made when your money was in the foreign currency bank account (this is exempted) and the gain you made while it was outside of the foreign currency bank account (this is not exempted).

It is a similar situation to the one proposed by wmb194 above where the money is invested in a MMF and therefore subject to normal investment CGT calculations. Though this scenario is clearer.

Unless the FX moves materially in your favour while the external FX service has it, then it would be unlikely that there would be a non-trivial gain.