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

itwasntme001

masonic said:

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.

Ok I think I understand better now.

So for the GBP I converted using TW, who held it in a e-money account for a day or so, this would be taxable if the FX rate moves in my favour up until the USD is moved from TW to a foreign bank account (e.g. with ii)?  The tax year for which this is applicable would be the tax year I moved the USD to the foreign bank account?

While this money is in ii, presumbly held in a foreign bank account, there would be an exemption for CGT on FX, even though I converted some back to GBP within ii, and some GBP to USD within ii also.

Of course there will be some CGT impact from FX when buying and selling USD denominated equities.

And when ever I convert the USD back to GBP by transfering from ii to TW, since it is just back to GBP there is therefore no FX CGT obviously?

masonic

itwasntme001 said:

So for the GBP I converted using TW, who held it in a e-money account for a day or so, this would be taxable if the FX rate moves in my favour up until the USD is moved from TW to a foreign bank account (e.g. with ii)?  The tax year for which this is applicable would be the tax year I moved the USD to the foreign bank account?

While this money is in ii, presumbly held in a foreign bank account, there would be an exemption for CGT on FX, even though I converted some back to GBP within ii, and some GBP to USD within ii also.

Of course there will be some CGT impact from FX when buying and selling USD denominated equities.

Correct

itwasntme001 said:

And when ever I convert the USD back to GBP by transfering from ii to TW, since it is just back to GBP there is therefore no FX CGT obviously?

There will also be a possible liability here, because you are moving USD from an exempt account to a non-exempt account and the FX could move between then and when your conversion happens.

itwasntme001

Yes thats true, so there can potentially be a liaibltiy when moving back to TW.

Checking my TW transaction history, I have made lots of small transfers for paying for holidays abroad.  Few thousand each time.  I guess these would be potentially CGT liable.

The funny thing is though I have always used the HMRC monthly FX rates published on their site in order to calculate gains/losses on USD equities when I have sold.  If I apply the same method of using the HMRC monthly FX rate, there would be no liability if the monies was sent (or received) all within the same month.

Makes things nice and simple!

masonic

itwasntme001 said:

Checking my TW transaction history, I have made lots of small transfers for paying for holidays abroad.  Few thousand each time.  I guess there would be potentially CGT liable.

There is another exception for money obtained for personal expenditure of individuals while abroad.

itwasntme001 said:

The funny thing is though I have always used the HMRC monthly FX rates published on their site in order to calculate gains/losses on USD equities when I have sold.  If I apply the same method of using the HMRC monthly FX rate, there would be no liability if the monies was sent (or received) all within the same month.

Makes things nice and simple!

It is possible that this is valid in your scenario. However, if one were engaged in currency speculation one may only hold positions intra-month, and HMRC would surely not be satisfied with such an approach. As such, it is a bit of a grey area.

But I think it is unlikely you'd make a material gain if you are converting to GBP promptly upon receipt into TransferWise and transferring out promptly after converting to USD.

itwasntme001

Yes I just saw about the exemption for FX when using for holidays.  Presumably this includes paying for hotels directly in a foreign country using foreign currency and also transferring foreign currency from TW to a personal or family member's foreign bank account for use abroad?

I guess I need to just confirm with ii that the foreign currency that they hold on my behalf is only in an actual foreign bank account.  If true, this means anything within ii relating to FX (except when selling foreign equities) would be CGT exempt.

masonic

itwasntme001 said:

Yes I just saw about the exemption for FX when using for holidays.  Presumably this includes paying for hotels directly in a foreign country using foreign currency and also transferring foreign currency from TW to a personal or family member's foreign bank account for use abroad?

The rules are not that detailed, but both of those examples would seem to be in the spirit of the rules.

itwasntme001

masonic said:

itwasntme001 said:

Yes I just saw about the exemption for FX when using for holidays.  Presumably this includes paying for hotels directly in a foreign country using foreign currency and also transferring foreign currency from TW to a personal or family member's foreign bank account for use abroad?

The rules are not that detailed, but both of those examples would seem to be in the spirit of the rules.

I checked with ii and they do hold the USD cash in a bank account.  So confirms the exemption on the ii side.

Makes things a lot easier and glad I have been doing these calculations correctly.

Thanks for your help masonic.