Transactions in a Foreign Currency Print
Where an asset is acquired and/or disposed of in a foreign currency, then the cost has to be converted to GBP at the exchange rate on the date of acquisition, and the proceeds converted to GBP at the exchange rate on the date of sale, so that the gain or loss on the asset reflects the currency fluctuation as well as any movement in the value of the asset.
On 15 June 2008 Derek bought some shares in a US listed company for $50,000. The exchange rate on that day was $1.9495:£1. He sells the shares for $100,000 on 22 March 2021 when the exchange rate is $1.3853:£1. Derek is a higher rate taxpayer and has no other gains in the year. His CGT liability is calculated as follows:
|Sale Proceeds||100,000||@ $1.3835:£1||72,280|
|Less Cost||50,000||@ $1.9495:£1||25,648|
|Less Annual Exemption||12,300|
|Total CGT Payable @ 20%||6,866|
It can be seen from the above example that the currency gain can form a significant portion of the overall gain. Had the exchange rates on the date of purchase and sale been the other way around, then instead of a gain of £34,332, the exchange rates would have reduced the gain to £15,155.