CGT on FX / foreign currency trading

CGT on FX / foreign currency trading

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For listed shares (equities), fund units, etc there are “matching rules” to work out which sales and purchases are matched up to work out CGT – for example, purchases within 30 days of the sale taking place are identified first, etc.

For foreign currency however there seems to be the option to just treat all sales and all purchases within a tax year as one. HMRC explanation here: http://www.hmrc.gov.uk/manuals/cgmanual/CG78316.htm “If the taxpayer agrees, you may adopt a simplified method for computing gains or losses on foreign currency acquired and disposed of in the course of buying and selling overseas investments. You may treat all disposals of any one currency, or `class' of currency, in the year of assessment or accounting period as a single disposal”

(1)  Does it only apply “in the course of buying and selling overseas investments”, what if currency trading is done via a brokerage account i.e. FX trading? What if currency trading is done alongside buying and selling foreign equities, e.g. I buy $1000 of US-listed shares, and to fund that I buy $1000 for sterling; then sell those shares and convert the $ proceeds back into £?

(2)  Say I bought $10000 and sold $8000 during the tax year; do I work out the average purchase price for the $10000?

(3)  The sums on my self-assessment will not be very large, but the overall capital gains for the year will exceed the allowance of £10,600. These FX transactions may create additional £2000-£3000 of gains. I worry about not getting the calculations correct (I am doing the self-assessment myself, not hiring an accountant), what would happen if HRMC decided they were unhappy with my calculations / interpretation of rules?

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By mjshort
28th Nov 2013 11:28

FX Gains
I only have experience of large amounts (traders, corporate treasury and international banks) but:

Do your FX deals match your purchases and sales of investments? If not you could be considered to be trading as opposed to hedging. You would therefore be regarded as making a profit and being charge income tax.

Your fx gains are, of course, taxable as either capital gains or income.

There is more than one way of calculating gains:
If matching the investments then your GBP amounts of the investment change.
If not you could use FIFO or a rolling average (this could still apply if you have some fx left over after matching the investments).

If HMRC decide they are not happy they would investigate you and raise penalties/interest accordingly.

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