Monday, Feb 09, 2009
Locked in
Need An Advisor: Capital Gains Tax : Currency Gains
I happened along this short bit of info. For some reason I thought that money, being money, couldn't be subject to capital gains tax, as it doesn't make sense. Just in case you are not aware, any gains in foreign currencies that have been made by selling out of the pound are subject to the flat rate 18% capital gains tax. A bit of a scam IMO. Obviously check your own arrangements. Is there some way, I wonder, for somebody who bought euros a year ago, then immediately bought back into sterling, to represent this obvious loss to the taxman as being deductible? We are all less wealthy with a pound collapse after all. Probably not....
Posted by stillthinking @ 12:31 PM (806 views) Add Comment
13 Comments
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1. stillthinking said...
Maybe this means that the poor old pensioners who wanted to live out their days in Spain, can offset their appalling capital losses of their pension fund against their spanish income tax....
Also, this must also mean that those wealthy foreigners such as the oligarchs etc, resident in the UK but wealth outside the country, must be facing a huge tax bill.
What a minefield tax legislation is... I never really thought about it before. A benefit of poverty.
2. mountain goat said...
Good find ST. When I looked into currency trading several months ago it seemed costly before considering capital gains tax. Glad I didn't go down that route.
3. techieman said...
If you spread bet the currencies there is no tax to pay. Of course that means you cant offset losses either. But why would you punt them if you thought you were going to lose?
In any case i am assuming you can use the CGT allowance.
4. goweresque said...
If you bought some euros with sterling, and then converted them back to sterling immediately you wouldnt have a loss, apart from the transaction costs. If there was a time lag between the buying the euros and then selling, and the rate changed in the meantime, any gain would be subject to CGT, and any loss could be set against other gains. You can't just say my pound is now worth x less in euro terms and therefore I've suffered a loss, becasue in pound terms you haven't. You have to do the 2 trades, just as you do for shares. I buy them, I hold them, I sell them. I make a gain or a loss. Simple. The obvious loophole is the 'personal use' one. If you could have a convincing explaination why you bought x amount of foreign currency, and then sold it again at a profit, such you were going to go on a round the world trip, so bought loads of dollars, but then decided you didn't want to go in the current climate, and sold them, then you might escape CGT. You'd have to have some documentary proof though. Of course we all have c. £8K of CGT gains allowed each year so you'd have to have some fairly big currency trades to make more than that anyway.
5. mark wadsworth said...
Goweresque makes good points.
Yes, gains are taxable at 18%, the gimmick being that capital losses can ONLY be offset against capital gains of the same or future years. So if I win and you lose, the net gain is nil but the taxman gets 18% from me and gives you nothing back.
6. bellwether said...
Techieman appreciate completely detached from post but thought the following point on Euro which you follow was interesting. Seems obvious but hadn't thought of it
"The ECB's obduracy has nothing to do with economics. It fears zero rates as a vampire fears daylight, because that brings the purchase of eurozone bonds ever closer into play. Any such action would usher in an EMU "debt union" by the back door, leaving Germany's taxpayers on the hook for Club Med liabilties. This is Europe's taboo"
7. bellwether said...
MG I've found occasional buying and selling of currencies a better way to make a bit in sterling terms than gold - to date. Only been investing for 6 months or so, so missed the 2002 - 2007 run up for gold.
Found that transacting with currency not that expensive (if you read it mostly right) and to be honest a capital gains bill is a nice problem to have. That said almost lost a lot of the gain as mis-read the extent of sterlings recent recovery - Techiemans views on the matter actually indirectly helped me bail out - a value of the site
Now just hoping that sterling rises a lot and sets up a selling opportunity. Looks to be doing that. I think!
8. d'oh said...
Just want to reiterate Techieman's point: If you use a spread bettign service (which is more or less identical to a currency trading service) then there is no tax to pay.
9. flashman said...
spread betting services have very large PIP spreads. It's much easier to make money with a good ECN type broker. I'd be happy to supply the names of some good ones. Most forex brokers are crooks who operate dealing desks against their clients. Please be careful
10. d'oh said...
flashman - Igindex is usually 2 or 3 pips on a major currency pair. Can't get much narrower than that can it? Moreover, you don't pay cgt. It's also a reasonably stable platform. Would be interested in your suggestion of other brokers. Too many people I know have had trouble with brokers for the reasons you suggest and getting stopped out by spreads suddenly widening.
11. flashman said...
I rarely 'pay' more than 1 PIP on the majors. 0.7 PIP is pretty average. Never trade with anyone who is commission free because they have manipulated price feeds and they use their dealing desk to hunt you down. Hotspot fx is very good. They are one of the few real ECN's. I have an institutional account but their retail account is excellent. They also offer retail customers the ability to place limit orders inside the spread which is a big advantage. Tradestation offer a reasonable retail account but they have the best charting package in the world. Its free if you place a few trades a month.
12. flashman said...
sorry didn't answer your CGT question. I pay income tax but with trading of an kind, never consider tax first. An honest broker (rare), a good platform and most importantly the lowest trading costs available are all that matter. Paying tax means your earning.
13. rumble said...
flashman, glad you got over your huff; I enjoy your posts. ;) "Most forex brokers are crooks..." - this has kept me away from forex; thanks for the Hotspot and Tradestation recommendations.