Can anyone tell me what should happen when a delay between foreign income arising and being converted into sterling results in an extra gain from the exchange rate?

For example:

A USD cheque is issued in July, but not cashed into £ until October. In the intervening months a change in the $/£ rate means that it cashes for £100 more than the £ value at date of issue. I.e. the $ cheque was worth £1000 in July, but £1100 by October.

On the arising basis HMRC guidance is to use the exchange rate from the date the income arose (July - £1000). How then should I report the additional £100 gain (or equivalent loss)?

Thanks for any answers.

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  • hmrc.gov.uk/manuals/rdrmmanual/rdrm31190.htm Check here – DumbCoder Dec 4 '15 at 11:14
  • Thank you for the link, but that guidance refers to the remittance basis. I am on the arising basis, on which HMRC guidance is very clear to use the exchange rate on the date the income arose. However I have been unable to find guidance relating to the sort of gain described above. I think perhaps I should treat it as a capital gain on foreign currency, but I'm really not sure. – CC8899 Dec 4 '15 at 14:13
  • @CC8899 you don't need to worry about small capital gains of £100 or so unless you have exceeded your £11,100 CGT allowance – Pepone Dec 4 '15 at 21:16
  • Thanks. You are right that if its a capital gain I won't have to pay anything so long as its under my allowance. I might still need to fill in the capital gains section of my tax return though (without answering the individual questions): gov.uk/capital-gains-tax/work-out-need-to-pay – CC8899 Dec 5 '15 at 14:38

It's not definitive, but it's a similar situation to the one I posted about in my question here. As you can see from my own answer, when I rang HMRC the guidance was to declare the additional value of the money in the "any additional information" box at the end of the tax return. That is what I did and nothing ever came of it - they never asked for more tax.

In your shoes I would enter the numbers on the return as the date the income arose and then make a note in the additional info box that it arose on X date, you cashed it on Y date, and the two values so that they can take that into account if they want to.

I also think that @Pepone is correct in the comments above that it would count as a capital gain, so unless you have exceeded your allowance it wouldn't matter anyway.

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  • Thank you for your answer. Thinking it over it does seem increasingly likely that this would be a small capital gain. I will take on board your idea of including all the relevant info in the extra space. – CC8899 Dec 5 '15 at 14:39
  • @CC8899 My answer (and the links to HMRC in it) to a slightly related question may be of interest / help. There a property was sold, but funds couldn't be converted immediately. Essentially, there are probably two taxable events: one on receiving the money (valued at the then current rate of exchange) and another on conversion (where any currency gain would be CGT). – TripeHound Sep 8 '17 at 15:08

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