Bank accounts

If you had opened a euro denominated bank account in 5 April 2012, when the Brexit referendum was a twinkle in David Cameron’s eye, €10,000 would have cost you just over £8,000. Fast forward to the summer of 2019, and that €10,000 would have been worth over £1,000 more.

So what happens if you withdraw those valuable euros now? Back on 5 April 2012 the law said that you had to pay capital gains tax on the foreign exchange gains in bank accounts. Thankfully, the following day new rules came in which exempted gains (and losses) on bank accounts holding foreign currency.

Foreign cash

What if, instead of opening a euro denominated bank account, you’d simply bought €10,000 in cash? Then it depends on why you purchased it. If you foresaw the political chaos to come in the UK and bought euros speculatively, then your gain should be taxable when you convert the euros back into sterling. If, however, you bought them for personal expenditure outside the UK – say, on holiday – then any gain should not be taxable.

Other assets purchased in a foreign currency

Exchange gains and losses when buying assets in foreign currencies are generally subject to capital gains tax. For example, if you bought €10,000 of shares and then sold them sometime later for there are two potential gains which need to be considered:

• Any gain/loss on the shares themselves; and
• The foreign exchange gain/loss.

This is dealt with by simply converting the acquisition and disposal costs into sterling at the prevailing exchange rate at each time. If you bought the €10,000 of shares for £8,000 and sold them for £19,000 when they were worth €20,000, then your capital gain should be £11,000, i.e. £19,000 less £8,000.

Cryptocurrencies

Despite the name, cryptocurrencies are not considered to be foreign currencies by HMRC. Although it’s tempting to draw parallels between an e-wallet and a bank account containing foreign currency, cryptocurrencies are not exempt from capital gains tax. Broadly, investing in a cryptocurrency is should be subject to capital gains tax, although trading may be subject to income tax.

There are now a bewildering array of cryptocurrencies and crypto-assets. The starting point is to ascertain what the nature of the crypto-asset is, and then work out the tax treatment from there.

If you have been trading or investing in crypto-assets and would like tax advice specific to your circumstances, please get in touch.

*This article does not consider forex trading.

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Aidan Roberson - Tax Manager

E: aroberson@goodmanjones.com

T +44 (0)20 7874 8845

Aidan helps company directors, partners and private individuals and families with their personal tax with an emphasis on inheritance tax. He enjoys bringing clarity to the complex problems which arise in these areas, providing people with clear, actionable advice.

7 comments on

  1. George_Brownett@yahoo.co.uk'George Brownett

    Hello Aidan,

    I find your Post very interesting.

    We have a UK company (two Directors / Shareholders (49/51% split)) that has both UK Sterling and Russian Ruble accounts with a UK Bank. I also have a personal bank account in Moscow in Russian Ruble currency. We are using Sage Accounts V26 with Foreign Trader module installed.

    The following is a scenario that I require advice: –

    1. Our company purchases £10k GBP of Russian Rubles at an exchange rate GBP to RUB is 95.0.
    Russian Rubles purchased and available in my company Ruble account is +950,000₽

    2. I now wish to purchase and transfer the 950,000₽ held by the company to my personal account in Moscow for £10k GBP.

    3. I pay £10k GBP into my Director’s Loan Account.
    I wire transfer the Rubles to my bank in Moscow and in Sage I repay my Director’s Loan Account by £10k GBP.

    This seems fairly straight forward to me, however ……

    4. If I transfer the 950,000₽ to my account in Moscow at a later date when the when the exchange rate has reduced do I have to revalue the GBP vs RUB exchange rate to the rate on the day of the transfer or can I just pay the same price that the company paid for the Russian Rubles?

    5. Also, if I do not have to revalue the purchased currency, do I have to revalue the currency at my year end (June 30th) or remove the currency by way of Director’s Load Account purchases prior to Year End?

    I am pretty sure that you have the answer ;-)

  2. graham.elliott@orange.fr'Graham Elliott

    If I sold my second home in France for less than what I paid for it, but Given the current exchange rate if I received more, in sterling, than I paid for the property, would there be any tax implications ?

    1. aidan.roberson@goodmanjones.com'Aidan Roberson

      The short answer is: probably. It depends if you hold the property directly (I am aware that many property in France are held via a company), and if you ever lived in it as your main home (I suspect not).

  3. Poppysah@googlemail.com'Ann White

    I have inherited a managed portfolio of shares, bonds and other financial instruments in Euros. I have not taken any capital from this fund. Dividends and interest are received in. There appears to be many transactions a year. How is capital gain tax calculated please.

    1. Aidan Roberson

      Your base cost should be the value of the assets on the date of the death of the person you inherited them from, at the euro-sterling exchange rate on that day. The proceeds should be whatever you sell them for, at the euro-sterling exchange rate on that day. The tax treatment could be a little more complex if there are more exotic financial instruments in the portfolio.

      If it is a managed portfolio I would expect the fund manager to take this into account, so I suggest you speak with them. If you have any other questions please get in touch via my email address above.

  4. anon@satoshi.com'Anon

    Am I right in the assumption that if I buy crypto currencies then I can exchange them for other crypto currencies and CGT only becomes payable if I convert a crypto currency back into GBP.

    Then when I come to sell if I sell all that I invested in Crypto I can claim all that I paid out initially as my costs off the value that comes back to me to work out the gain, then take off my capital gains allowance from that and simply pay 20% CGT or whatever is left (Or whatever the rate is as a basic rate tax payer in PAYE employment).

    1. Richard Verge

      HMRC’s view of crypto currency is that they are assets for UK tax purposes and different types of crypto currencies are different assets. The consequence of this is that exchanging one type of crypto currency for another is a disposal for capital gains tax purposes and will be taxable for the tax year in which that exchange takes place.

      The normal capital gains tax rules apply for matching your original cost with you disposal so if you sell or exchange all of your asset then you can offset all of your original cost. If you have exchanged for a different type of crypto currency then the base cost for your subsequent disposal will be the market value at the date of that earlier exchange.

      It should be noted that HMRC consider any use of crypto currency to pay for goods or services is also a capital disposal and accordingly anyone using crypto currency must keep careful records of their transactions to enable them to declare their tax liabilities correctly.

      Further guidance setting out HMRC’s view on the tax treatment of crypto currencies can be found at: https://www.gov.uk/government/publications/tax-on-cryptoassets

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