U.K.’s Remittance Basis, Exchange Rates
U.K.'s Remittance Basis, Exchange Rates
Changes to the U.K.’s “remittance basis” of taxation have focused attention on the appropriate exchange rate that should be used for converting foreign income into sterling for U.K. tax purposes.
Save for the narrowly drawn exemption, foreign-currency bank accounts are a chargeable asset for U.K. capital gains tax purposes. This means that potentially any purchases made from, and transfers between, foreign bank accounts may lead to capital gains or losses for U.K. tax purposes. The concession allowed U.K.-domiciled individuals to treat multiple bank accounts in the same foreign currency as a single account with the result that transfers between an individual’s accounts would not be treated as a disposal of foreign currency for capital gains tax (CGT) purposes. This practice applied to accounts that:
• are in the individual’s name;
• are in a particular foreign currency; and
• are not situated in the United Kingdom.
HMRC has now extended this concessionary treatment to non-U.K.-domiciled individuals with effect from 6 April 2008 (i.e., the tax year 2008/2009).
KPMG Note
This is a response to a number of representations made to HMRC that the compliance burden on non-U.K.-domiciled individuals was unduly onerous in circumstances where they would need to make capital gains tax calculations relating to each and every transfer between their same-currency foreign bank accounts. This applied particularly where the non-U.K.-domiciled individual did not elect for the remittance basis (e.g., for longer-term U.K. residents because payment of the £30,000 charge made this unviable).
This change should reduce the compliance burden for some taxpayers. Some taxpayers and tax professionals may be disheartened that the HMRC statement was not announced rather earlier in the U.K. tax year given that the filing date for 2008/2009 tax returns is 31 January 2010.
Source: KPMG
