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HMRC internal manual

Corporate Finance Manual

Foreign exchange: tax rules on exchange gains and losses: loan relationships and derivative contracts: exchange differences on shares

Exchange differences on shares

In general, exchange gains or losses on shares held by a company will be brought into account only as part of any capital gain (or loss) arising on disposal of the shares. There are a small number of exceptions.

Where shares are treated as creditor loan relationships under the shares as debt rules (CFM45000), the resulting credits or debits are required to be determined on the basis of fair value accounting. Where the shares are denominated in foreign currency, such fair value changes will include exchange differences. It will, however, rarely be necessary to identify these separately.

A company that is party to a sale and repurchase (repo) of shares denominated in a foreign currency will show exchange gains or losses on the repo in its accounts. Where the repo is treated as a money debt owed by, or to, the company under CTA09/PT6/CH10 (CFM46000) these exchange differences will be brought into account as loan relationship credits or debits.

Exchange gains and losses may arise on shares held as part of a company’s trading stock if the company is a bank or financial trader. Such exchange differences are not within the loan relationships regime, but will form part of the company’s trading profits.

Shares issued by a company

A company that issues shares denominated in a currency other than its functional currency will not normally retranslate its share capital at each balance sheet date. However, some companies may do so - particularly banks and insurance companies that have, for regulatory purposes, issued capital that has characteristics of both debt and equity.

Unless the capital issued by the company comes within the loan relationships regime (for example, if it consists of perpetual debt), such exchange gains or losses will be ‘tax nothings’. But exchange gains or losses on assets or derivatives used to hedge such share capital may come within the matching rules - CFM62000.