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There are many ways a currency can lose its value. For example, during the financial crisis people were dumping GBP in favor of reserve currencies such as USD, which will probably happen again during the next recession, whenever it is.

Taking the last recession as the example, if I were to sell 100,000 GBP in mid-2008 for 200,000 USD, then by the year end I'd still have 200,000 USD, which would be worth 133,333 GBP. I think I preserved my capital. Does the revenue service think I made money?

GBP to USD historical chart

Update: asking as a resident of UK, but would be interested to learn how it works in the US as well

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    Are you asking as an American who happened to have some UK currency to sell, and are taxed by the IRS, or a Brit who bought dollars as a hedge and are taxed by HMRC? – TripeHound Dec 9 '19 at 7:59
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    Long term foreign currency gain is not subjected to tax unless you buying some sort of financial derivative. – mootmoot Dec 9 '19 at 12:56
  • @TripeHound as a UK resident – Vitaly Dec 9 '19 at 15:14
  • @mootmoot When is it considered a gain, when one buys the original currency back or when the tax year ends? And how long is long-term? – Vitaly Dec 9 '19 at 15:28
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    @Vitaly I think Capital Gains Manual: Chattels and other assets: Foreign currency: contents is probably the place to start, and it looks complicated! This page seems to suggest that from 2012 things are simpler, but before then, I think you would pay CGT on the value when you moved the currency back to sterling (see some of the examples from the first link). Not sure enough of the details to make this an answer, though. – TripeHound Dec 9 '19 at 15:46
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For UK citizen and UK forex trade account, the forex capital gains are tax-free according to this article :

This means a trader can trade the forex market and be free from paying taxes; thus, forex trading is tax-free! This is incredibly positive for profitable forex traders in the U.K. The drawback to spread betting is that a trader cannot claim trading losses against his other personal income.

While for the forex trader in USA and USA citizen, it is quite complicated:

Filing taxes on forex profits and losses can be a bit confusing for new traders. In the United States there are a few options for Forex Trader. First of all, the explosion of the retail forex market has caused the IRS to fall behind the curve in many ways, so the current rules that are in place concerning forex tax reporting could change any time.

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    Forex is only tax free in the UK if it's done as part of spread betting. Treatment as a professional is more complicated and depend on the inspector. Normally foreign currency VAT is treated as being a transaction on the day and forward bought currency rates are NOT allowed. (specifically see this page gov.uk/guidance/… ) However I have had customers who were active traders in commodities where HMRC allowed them to use forward rates. In short I would expect capital gains to be the main issue here. – PeterI Dec 9 '19 at 16:18
  • @PeterI OP didn't ask about forex trade involved commodities. – mootmoot Dec 9 '19 at 17:16
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    True but it's one example where traders get a different tax treatment from a "normal" company over forex transactions. – PeterI Dec 9 '19 at 18:22

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