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HMRC internal manual

Capital Gains Manual

Disposal of assets situated abroad: Example 1

Miss B sells an asset for net disposal proceeds of US $160,000 at a time when the sterling equivalent is £100,000. The proceeds include a gain of £25,000 equivalent to US $40,000. She pays US $120,000 into one bank account and US $40,000 into another bank account. Subsequently she transfers US $60,000 to the UK out of the first bank account. Note that there is no conversion of the dollars into sterling.

She may argue that since the payments to the bank accounts were equal respectively to the amount of the capital and the amount of the capital gain included in the disposal proceeds she has split those proceeds into capital and capital gains. She will then argue that, because she has imported money from an account containing only capital, she is not liable to Capital Gains Tax as a result of bringing the money to the UK.

This is incorrect. Both bank accounts are mixed funds which contain foreign chargeable gains and capital in the ratio 1:3 (ie 25,000:75,000). By transferring US$60,000 to the UK out of an account which contains US$120,000 in total ($30,000 gains plus $90,000 capital), under the mixed fund rules (see CG25380+) Miss B has remitted US$30,000 of her foreign chargeable gains and US$30,000 capital. (The money transferred out of the mixed fund is identified with the gains in priority over the capital.) The $60,000 remaining in the account is wholly capital.