Non Doms & Foreign Currency Bank Accounts

There's been a lot of changes in the HMRC guidance relating to foreign currency bank accounts during 2009 and 2010. A withdrawal from a foreign currency bank account constitutes a disposal of an asset and a capital gain or loss would generally be computed whenever there is such a withdrawal. Withdrawal includes the transfer of funds to another account, even if that other account is denominated in the same foreign currency. Non Doms claiming the remittance basis would be taxed if there was a remittance back to the UK. Therefore even if you transferred forex from a US $ account to a UK $ account this would in principle be a disposal for CGT purposes. There is a statement of practice (SP10/84) that allows UK residents to disregard direct transfers between accounts in the same currency for capital gains tax purposes. However, SP 10/84 is not available to individuals who are not domiciled in the UK in respect of their foreign currency bank accounts located outside the UK. As such transfers by non doms between different foreign currency accounts could potentially be subject to CGT. Extension of SP 10/84 HMRC has however introduced guidance to extend the application of SP 10/84 to non doms in respect of transfers on or after 6 April 2008. HMRC have said: '…HMRC has long recognised the implications of these rules for individuals who hold foreign currency bank accounts ('FCBAs'). The effect of SP10/84 is to relieve them of the need to carry out numerous computations, but it did not apply to the offshore FCBAs of individuals who were not domiciled in the UK. This was because of the difference in treatment, for non-domiciled individuals, between accounts outside the UK, on which gains were liable to CGT only when they were remitted to the UK, and accounts within the UK, on which gains were liable to CGT when they arose. After receiving representations from stakeholders on the effects, in this context, of the revised remittance basis of taxation introduced by Finance Act 2008, HMRC has reached the view that it is consistent with the practice described in SP10/84 to allow individuals not domiciled in the UK to treat all their FCBAs located outside the UK in a particular currency as a single account…' Therefore as from April 2008 non doms can treat overseas accounts containing the same foreign currency as one account. This applies whether they're taxed on the arising basis or the remittance basis. The result of this is that transfers between the overseas accounts would then not give rise to a capital gain for CGT purposes. Note if you converted the currency into a different currency or transferred it back to the UK this could still result in the gain crystallising. When the new provisions apply HMRC state that an individual who is not domiciled in the UK can treat all bank accounts which: • Are in his name
• Are in a particular foreign currency
• Are not situated in the UK
as one account and disregard direct transfers among such accounts for capital gains purposes. If you use this practice you must also apply it to all future direct transfers among the bank accounts in your name containing that particular currency. Therefore the CGT free transfers only apply to overseas foreign currency accounts. If you transferred foreign currency into a UK account (even if it was the same currency) this would be a disposal for CGT purposes. There is also a de minimis limit of £500 so that where your gains from transfers from overseas non-sterling bank accounts which you remit to the UK are less than £500 in any tax year, you won't have to declare these gains to HMRC.