Newsletters
Autumn News
Fair Exchange?
The state of sterling can produce some strange effects for CGT. Capital gains have to be measured in pounds, not in foreign currency, so if you invest abroad, for example in property or shares, you are required to work out the equivalent sterling value on the day you buy and the day you sell. Suppose you bought a holiday home for €300,000 when the euro was €1.5 to £1: the property would have cost you £200,000. If you sell it for €297,000 when the exchange rate is €1.1 to £1, you might think you have a small loss of €3,000 - but the taxman will convert the foreign currency proceeds into £270,000, and you have a large capital gain.There is a nasty catch if you borrowed money to buy your foreign property. Paying it back will take more pounds than the value when you took out the loan, so you have lost money as a result - but you can't claim a CGT loss on a loan.
If you have assets or borrowings in foreign currencies, it's important to understand the tax treatment, particularly if you are thinking of selling something. We can crunch the numbers for you.