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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Foreign currency: example

In 1983, Ms A who is both resident and domiciled in the United Kingdom buys a property overseas for foreign currency, which she acquired for £50,000 on the date of purchase of the property (that is, there was no gain or loss on the acquisition and disposal of the currency). In 1986-87 she sells the property for 3,000,000 units of the foreign currency at a time when the exchange rate is 40 to £1. The sterling equivalent of the currency so obtained is therefore £75,000.

The chargeable gain (subject to expenses) is £75,000 less £50,000 equals £25,000, before indexation, and this is assessable for 1986-87.

Ms A makes a claim under TCGA92/S279 and establishes that she is unable to transfer any of the sale proceeds to the United Kingdom because of the foreign country’s currency regulations. The gain of £25,000 less indexation is no longer assessable for 1986-87, and any assessment which may have been made should be adjusted accordingly.

In 1991-92, the foreign country relaxes its currency regulations and Ms A is then able to transfer the sale proceeds to the United Kingdom. She becomes assessable for that year (whether or not she remits the sale proceeds to the United Kingdom) on £25,000 less indexation (that is, the amount by which the assessment for 1986-87 was reduced).

If she disposes of the currency at a time when the exchange rate is 32 to £1, the gain on the currency (that is, the separate chargeable asset) is

Proceeds of currency 3,000,000 units @ 32 to £1 93,750
Cost of currency 3,000,000 units @ 40 to £1 75,000
Gain before indexation 18,750

This gain is assessable for the year in which the currency is disposed of.

If the currency regulations for the foreign country had allowed remittance to the United Kingdom of only 1,000,000 units in 1986-87, the part of the gain assessable for that year would be computed as follows

Amount assessable 1,000,000 x £25,000 = £8,330

Any gain or loss on the disposal of the currency will again need to be computed separately, by reference to the exchange rate (say 25 to £1) at the time she disposes of the currency

Proceeds of currency 1,000,000 units @ 25 to £1 40,000
Cost of currency 1,000,000 units @ 40 to £1 25,000
Gain before indexation 15,000

NOTE. If a taxpayer is within the charge to Capital Gains Tax, neither indexation allowance nor taper relief apply to disposals of assets on or after 6 April 2008. Previously indexation allowance had been frozen at April 1998. For indexation allowance see CG17207+ and for taper relief see CG17895+.