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HMRC internal manual

Capital Gains Manual

FOREX: historical and current treatment

The 1993 and 1994 Finance Acts provided rules applicable to most companies for the assessment and relief of

  • exchange differences on monetary assets and liabilities
  • profits and losses on certain financial instruments.

These are often known as ‘FOREX rules’.

In broad terms the effect of the legislation was to treat any profit or loss that arose from such transactions as being on income account and so not within the charge to tax on capital gains.

The legislation only applied to companies. The tax treatment of individuals and non corporate bodies was unaffected by these rules.

The rules in FA 1993 and FA 1994 were repealed by FA 2002. For accounting periods beginning on or after 1 October 2002

  • exchange differences are subject to the Loan Relationship rules, see CFM34160+, and
  • financial instruments (now called derivatives) are subject to the Derivatives rules, see CFM53120+.

As before, these rules apply only to companies. They do not apply to individuals and non-corporate bodies such as trustees.

Guidance on the pre-FA 2002 FOREX rules is no longer included in this manual. If you need to consider the deleted guidance then this is available from commercial tax information packages or directly from Capital Gains Technical Group.