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In December, the Treasury said legislation was required to prevent certain capital gains tax losses from transactions on foreign currency bank accounts.
The losses tend to arise where remittance basis users make a remittance that comprises or includes remitted foreign income.
In response to numerous requests for clarification of the way in which users of the remittance basis should treat gains and losses that arise from movements between overseas bank accounts held in a foreign currency, HMRC have published draft guidance.
For the purposes of capital gains tax, an overseas bank account held in a foreign currency is a chargeable asset.
However, if the total net gains that arise from these transfers is equal to or less than the annual exempt amount, there will usually be no capital gains tax to pay.
In most cases, individuals who choose to be taxed on the remittance basis will lose the amount and have to report the capital gains tax payable on any movements between such accounts when completing their self assessment returns if those gains are remitted to the UK.
Recognising that this might involve significant administrative obligations, HMRC have published various methods designed to reduce these difficulties.
In addition, where there are many transactions to take into account and the amount of net gains from transfers from overseas non-sterling bank accounts remitted to the UK is less than £500 in any tax year, individuals will not be required to report such gains on their tax returns.
This practice will apply for 2008-09 and subsequent tax years.
HMRC have also extended Statement of Practice 10/84 to non-domiciled individuals. This describes a practice under which all bank accounts in a particular foreign currency may be treated as a single account in certain circumstances.
It is not, however, available to individuals who are not domiciled in the UK in respect of their foreign currency bank accounts located outside the UK.
In future, individuals who are not domiciled in the UK will be able to treat their offshore bank accounts in a particular foreign currency as a single account. See here for further information.
