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HMRC internal manual

Corporate Finance Manual

Foreign exchange: tax rules on exchange gains and losses: what are exchange gains or losses?

What are exchange gains or losses?

An exchange gain or loss is defined in CTA09/S475.

An exchange gain or loss arises when you compare the value of an asset or liability valued in one currency with its value in another currency at two different dates.

Exchange gains and losses arise on the following occasions.

  • At the accounting period end when there is a difference between the valuation of monetary assets and liabilities

    • at the date they are originally entered in the books during the AP and at the accounting period end, and
    • from one accounting period end to another, if continuing.
  • When the debt is settled based on the difference between

    • the valuation of an amount when it is settled, and
    • the previous valuation (i.e. the date it was entered in the books if during the AP, or at the previous accounting period end).

Where the result is a profit there is an exchange gain, and where the result is a loss there is an exchange loss. If the comparison produces neither a profit nor a loss there is neither an exchange gain nor an exchange loss for the period.

See the examples at CFM61040.

Consolidation of entity’s accounts

Exchange gains and losses also arise on consolidation of the accounts of a branch or subsidiary that prepares its accounts in a currency different to the investing entity. For more on this see CFM64000 onwards.

Further guidance

Further guidance is available as follows.

  • Accounts drawn up in a foreign currency - CFM61050 
  • The exchange rate to be used - CFM61060.
  • How these rules apply to loan relationships and derivative contracts - CFM61070.
  • How non-monetary assets are affected - CFM61110.