HMRC have published a welcome practice statement relating to the capital gains tax treatment of foreign currency bank accounts. This is a complete nightmare.
A foreign currency bank account is a chargeable asset for capital gains tax purposes. This means that any transaction on that account represents the disposal of the currency at the exchange rate prevailing on that day. That may give rise to a gain or a loss. If the transaction is to acquire a chargeable asset, another gain or loss will need to be calculated when it is disposed of. All these gains have to be taken into account in determining whether of not it is worthwhile for somebody to pay the £30,000 non-dom charge.
HMRC have announced that they will adopt a simplified approach whereby the calculations can be made with an average exchange rate over a period of time up to 6 April 2008. This simplified approach is entirely optional and individuals can still calculate their acquisition costs and dispose values by using the actual exchange rates which were in force at the time.
HMRC acknowledge that it can be a formidable task to compute gains or losses on withdrawals from a foreign currency bank account, and they therefore propose a practice whereby debits and credits are aggregated on a monthly basis and the calculations are undertaken using the average rate of exchange for the month.