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CGT on foreign investments.
Marco Sorsa
Posted: 17 August 2017 16:53:19(UTC)
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Which scenario is correct?

1. I buy 100 Microsoft shares at $1 each and 3 years later sell at $2. My gain is $100.
This $100 I convert to £ at the rate at the date of sale. This will be my capital gain in pounds.

2. I buy 100 Microsoft shares at $1 each and convert it to £ and this will be my base cost.
I sell 3 years later at $2 and convert the proceeds to pounds.
The capital gain will be the difference and will include the currency depreciation/appreciation.
Thank you.
jeffian
Posted: 17 August 2017 18:53:53(UTC)
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Assuming you are UK resident and UK taxable, I believe that the answer is your number 2. HMRC are only interested in what it cost you in GBP and what you sold it for in GBP at the time of each trade.
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Jon Snow on 20/08/2017(UTC)
S_M
Posted: 20 August 2017 08:40:02(UTC)
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Marco Sorsa;49901 wrote:
Which scenario is correct?

1. I buy 100 Microsoft shares at $1 each and 3 years later sell at $2. My gain is $100.
This $100 I convert to £ at the rate at the date of sale. This will be my capital gain in pounds.

2. I buy 100 Microsoft shares at $1 each and convert it to £ and this will be my base cost.
I sell 3 years later at $2 and convert the proceeds to pounds.
The capital gain will be the difference and will include the currency depreciation/appreciation.
Thank you.


Not quite sure what you are getting at here, if you are UK resident for tax purposes then you pay capital gains tax over an annual allowance over £11,300 in the current tax year. Depending on your marginal rate of tax you will pay either 18 or 28%.

Why would you hold Microsoft shares outside an ISA/SIPP, which would eliminate any issues with CGT?

Marco Sorsa
Posted: 20 August 2017 10:41:46(UTC)
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S_M;50002 wrote:
Marco Sorsa;49901 wrote:
Which scenario is correct?

1. I buy 100 Microsoft shares at $1 each and 3 years later sell at $2. My gain is $100.
This $100 I convert to £ at the rate at the date of sale. This will be my capital gain in pounds.

2. I buy 100 Microsoft shares at $1 each and convert it to £ and this will be my base cost.
I sell 3 years later at $2 and convert the proceeds to pounds.
The capital gain will be the difference and will include the currency depreciation/appreciation.
Thank you.


Not quite sure what you are getting at here, if you are UK resident for tax purposes then you pay capital gains tax over an annual allowance over £11,300 in the current tax year. Depending on your marginal rate of tax you will pay either 18 or 28%.

Why would you hold Microsoft shares outside an ISA/SIPP, which would eliminate any issues with CGT?



ISA/SIPP will not work for me. You still have to report your gains on all your foreign investments. Method 1 will show a capital gain of about £15 000.00 and method 2 will be £18 000.00 in my case.
Method 2 will include the movement of the currencies as well where method 1 does not.
Marco Sorsa
Posted: 20 August 2017 10:52:53(UTC)
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jeffian;49906 wrote:
Assuming you are UK resident and UK taxable, I believe that the answer is your number 2. HMRC are only interested in what it cost you in GBP and what you sold it for in GBP at the time of each trade.


Many countries have adopted the "simple accounting" method where you calculate the gains in the foreign country's currency and only then do you convert it to GBP for tax. Not sure if HMRC
allows this.
The other method is an accounting nightmare if you use the FIFO method and have multiple deposits and part withdrawals.
jeffian
Posted: 20 August 2017 11:55:33(UTC)
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"Many countries have adopted the "simple accounting" method where you calculate the gains in the foreign country's currency and only then do you convert it to GBP for tax"

Not here. The answer's still your No.2.
Marco Sorsa
Posted: 20 August 2017 12:05:05(UTC)
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jeffian;50011 wrote:
"Many countries have adopted the "simple accounting" method where you calculate the gains in the foreign country's currency and only then do you convert it to GBP for tax"

Not here. The answer's still your No.2.


Is that just your thinking or are you sure and can post a link or quote where it says so. I need to be 100% sure. When I lived in South Africa I used the simple method. SA normally uses UK rules or "international best practice" rules.

I quote from the SAIT (SA Institute of Tax experts):

//Paragraph 43(1) determines that where a natural person or non-trading trust disposes of an asset in the same foreign currency that it acquired the asset, the gain or loss should be determined in that foreign currency and be converted to ZAR by applying the average exchange rate for the year of assessment in which that asset was disposed of or by applying the spot rate on the date of disposal of that asset. SARS describes this method of calculating the capital gain or loss in the foreign currency and the converting such gain or loss to ZAR as the “simple conversion method.//

A trader in stocks cannot use this method.
Money Spider
Posted: 20 August 2017 12:58:25(UTC)
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Re. the posting by S_M above:

The CGT rates quoted in that post are a couple of years out of date - they have been reduced.
CGT rates for 2016-17 and 2017-18 are 10% (Basic Rate) and 20% (Higher Rate). However, do your one checking.

As an aside for others, this does mean that if you are a Higher Rate taxpayer, then you will likely pay lower tax on a capital gain on shares (20%) than on taking more income (32.5% dividend tax). Again, do your own checking, I am a simple layman, not a tax specialist.
jeffian
Posted: 20 August 2017 13:01:56(UTC)
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If you need to be 100% sure then the answer is to pay an accountant!

I'm pretty sure. I can't find anything specific on the gov.uk website but the subject does come up on several taxation forums, e.g. the following example deals with your specific point -

http://www.taxationweb.c...eign-shares-t27045.html

Again, I am assuming you are a UK citizen, resident and taxable here. I don't see what SA tax has to do with it.

Edit: I am wondering whether you are? When you say "ISA/SIPP will not work for me. You still have to report your gains on all your foreign investments". No you don't. Anything in an ISA/SIPP is 'invisible' to HMRC.
Marco Sorsa
Posted: 20 August 2017 15:34:27(UTC)
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Thanks @jeffian. It was not solved there either.

I referred to South Africa as I lived there and they use the simplified method that I posted. This was the method I used there and am unsure if it is used in the UK.

Surely there are many investors in foreign stocks that use either of the 2 methods without knowing about the other method. This is the reason I brought it up. Using the wrong method could cost you a pretty penny.

As to asking an accountant for the info will make this forum redundant. We are here to discuss and solve each others problems. If it cannot be solved here then I have no option but to consult a Cross Border Tax Lawyer/Consultant. Most accountants would not know as they do not normally work in this area.

jeffian
Posted: 20 August 2017 16:00:08(UTC)
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One of us is getting crossed wires here! The link I posted covers exactly the situation you describe in your opening post. There is no "other method" in UK, whatever they do in SA. You don't need a "Cross Border Tax Lawyer/Consultant" as any UK tax accountant will know how to account for tax on foreign earnings and gains.

Are you actually a UK citizen/resident/taxable?

Marco Sorsa
Posted: 20 August 2017 17:09:22(UTC)
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jeffian;50022 wrote:
One of us is getting crossed wires here! The link I posted covers exactly the situation you describe in your opening post. There is no "other method" in UK, whatever they do in SA. You don't need a "Cross Border Tax Lawyer/Consultant" as any UK tax accountant will know how to account for tax on foreign earnings and gains.

Are you actually a UK citizen/resident/taxable?



Seems like that forum is discussing FX trading or short term stock trading. That would require the exchange rate to be used in the calculation from the purchase price to the sell price. They are in it for INCOME.

Further to this. I have over 30 years of trading and investing experience and so far I have not found a single accountant that is conversant with cross border tax issues where foreign investments and CGT are concerned. Not in SA. Not in Portugal and not in the UK.

The tax here in Portugal is far too high on CGT so I intend going back to the UK. I have to pay 28% on every € with no exempt amount.
Mikesmusing
Posted: 20 August 2017 17:42:09(UTC)
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A cheaper solution than paying a tax accountant would be to ask HMRC using their helpline. It's free.

My understanding agrees with jeffian's first reply to the original post. Various other forums discuss the same question and reach the same conclusion, but asking HMRC would confirm it.
Jon Snow
Posted: 20 August 2017 18:02:18(UTC)
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jeffian;49906 wrote:
Assuming you are UK resident and UK taxable, I believe that the answer is your number 2. HMRC are only interested in what it cost you in GBP and what you sold it for in GBP at the time of each trade.


Absolutely correct in my opinion and experience.

Also you don't need to ask an accountant because that's one of the things my accountant deals with in my tax return.

I have some shares in a French company (long story, done pretty well for me though) bought years ago and I sell some occasionally. I am based in the UK for tax purposes so my base currency is £UK.

The shares purchase price is the amount paid in € (in my case) at the time of purchase converted to £ using the exchange rate at the time of purchase.

The shares sale price is the price obtained in € at the time of sale converted into £ using the exchange rate at the time of sale.

If dividends have been paid (and reinvested as in my case) I get an annual statement showing the dividends paid in €, the exchange rate used, the dividends paid in £ and the new shares purchased.

The gain is just the difference between sale price and purchase price in £.

Things may be different for more exotic countries and individuals with more sophisticated tax arrangements though.
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Tim D on 20/08/2017(UTC)
Marco Sorsa
Posted: 20 August 2017 18:16:51(UTC)
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A self assessment may let it pass but an audit will not. If you are a small investor it may not be flagged for audit.
Still no proper answer to this question. No problem and it seems I will have to get advice from a tax lawyer.
Jon Snow
Posted: 20 August 2017 19:24:06(UTC)
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I sense a bit of mission creep here.

I think most posters were seeking to answer the original question.

Good luck.
jeffian
Posted: 20 August 2017 22:27:35(UTC)
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This is a wind-up.
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blackandgold on 21/08/2017(UTC)
Jon Snow
Posted: 20 August 2017 22:34:59(UTC)
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jeffian;50032 wrote:
This is a wind-up.


I chose more delicate language, not seeking conflict with my fellow posters.


Alan Selwood
Posted: 21 August 2017 00:00:15(UTC)
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There seems to be some vagueness about which tax regime applies.

If a person is tax resident in Portugal, it will be the Portuguese tax rules that apply. If UK tax resident, UK tax rules apply. (Domicile rules are something else again!)

Sometimes a person may be liable for tax on the same money in 2 countries at once, but in most of those cases there is a double taxation agreement in force that offsets the tax paid in one of those countries when calculating the liability in the other. It is typical for the individual to end up paying the higher of the two possible tax charges rather than the lower!

ISAs and SIPPs and proceeds of National Savings Certificates are tax-exempt in the UK to UK residents, but someone who resides in the USA will not have that exemption extended to him or her, because subject to American tax laws, which don't include tax exemption for foreign investments which are exempt in that foreign country. Trusts, too, are sticky to deal with - what counts as a trust for tax purposes in (e.g.) Jersey will often be completely disregarded when calculating tax liability in certain countries - they tend to 'look through' the trust and levy tax as if the assets were directly owned rather than being in a trust.

Tricky stuff, and best checked with a competent tax specialist if you could have liabilities in more than one country. Sadly, you can easily pay £400 to £500 per hour for advice and calculations!
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Tim D on 21/08/2017(UTC)
kWIKSAVE
Posted: 21 August 2017 09:14:21(UTC)
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Any growth in ISA's is taxable in Portugal. Their tax year runs on a calendar basis. If emigrating there ( which I did a while back) best to sell the ISA's before 1 January prior to departure date.
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