US ETFs, capital gains, and the order of foreign exchange and cost averaging?

The HMRC requires capital gains to be calculated based on average acquisition cost (Section 104 holding). We also have to work out the cost of acquisition in pounds.

So do we work out the average cost of the shares in dollars, then for each purchase convert to pounds using the rate for the acquisition date?

Or do we convert the acquisition cost of each purchase to pounds, then average the pound cost?

To add to the woes, I'm not sure I have the acquisition costs for all my purchases over the decades. I can keep track of it from now on, but I've no record of the shares I've purchased and sold years ago.

It looks like the different cost basis, plus the different FX rates of the years, can result in capital gains in the US and UK being wildly different.

Any insight or thoughts?

Thanks, Jonathan

I don’t know the answer because I switched to specific id for buying and selling shares in ETFs many years ago. Even so, the capital gains vary widely between the US and UK because of the exchange rates. I sell shares every year from my US ETF but do know the actual dates and cost in USD when I bought the shares.

I am interested in the answers though.

I got the impression from the HMRC site you couldn't do specific ids for capital gains, and were forced to do average cost. Am I missing something?

https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2021

I got the impression from the HMRC site you couldn't do specific ids for capital gains, and were forced to do average cost. Am I missing something?

https://www.gov.uk/government/publications/shares-and-capital-gains-tax-hs284-self-assessment-helpsheet/hs284-shares-and-capital-gains-tax-2021

I use a tax preparer and looking at a typical SA return with 4 sales on different dates of purchases from ETFs then Schedule 2 lists each sale and gain for each sale based on purchase and sale prices.

That's good to know - the tax code makes it seem like you can't do that, but if a preparer says it's okay, it must be an option.

That's good to know - the tax code makes it seem like you can't do that, but if a preparer says it's okay, it must be an option.

I also have a copy of Taxcalc (£34?) and it is very easy to enter the sales one by one which then appear on schedule 2 in the return

Assuming these are reporting funds, a UK return reports dividends plus ERI plus any realised capital gains, calculated using a Section 104 pool, because this is what Parliament decided. A Section 104 pool will indeed have a different basis than showing on a 1099.

If these are non-reporting funds, ERI is not reported and a Section 104 pool is not used. Instead one calculates basis uses a LIFO method, which will be quite different from that reported on a 1099.

Lots of fun with spreadsheets - or better still - an investment manager that provides the calculations.