Mutual Fund Cost Basis & USD/GBP exchange rates?

Hello,

New here, have been in the UK for a couple of years but only just now taking care of my UK tax filing (US is fine).

I'm a dual US/UK citizen, non-Dom, and have remitted a decent amount of money into the UK during the past two years, and am currently in the process of determining what my gains were for Self Assessment tax purposes. I'm most likely going to go for the remittance basis, though I intend to calculate my tax liability for both options.

Here's my struggle: Most of the money I've remitted has come from mutual funds (non-UK-reporting), many of which I've been putting money into since anywhere from 1999-2006. I've figured out exactly what my income & gains are for all money remitted here, but only in USD. I only have convenient access to records going back 7 years so am struggling with figuring out my cost basis for these funds in GBP.

Is there some sort of generally accepted (by HMRC) method of estimating cost basis for old purchases & reinvested dividends/distributions or am I really going to have to get 16 years worth of paper statements and calculate it all myself? I have access to statements and know my USD cost bases going back to 2008 but I don't know what a reasonable start point or accepted average exchange rate would be.

Thanks!

I know the IRS would require you to calculate the foreign exchange gains as well and I thik it's the same for HMRC. If you reinvested dividends and bought the mutual funds regularly it will be a very tedious calculation. This is one reason it's often advised to realize capital gains before you move to another country; it resets the calculations and you have a chance to keep track.

Here is an example of an HMRC taxable gain calculation for the sale of stock in a foreign currency. Go to p.17 and look at Example 6. I don't know if you can use an average cost basis or if you have to identify the lots you are selling.

http://www.icaew.com/~/media/corporate/archive/files/technical/tax/tax%20news/taxguides/taxguide%204%2011%20foreign%20currency%20issues.ashx

Of course as non-reporting funds you don't get a capital gains tax allowance as the income and gains are taxed at your marginal income tax rate.

Unfortunately, I believe that HMRC would expect you to calculate the GBP basis price based on the exchange rate at the date of purchase, so you do need to know the basis and the date of purchase.   

As Nun mentioned, if these are non-reporting funds in the UK, then the gains will fall under the Offshore Income Gains rules - which means that the gains would be taxable as income at your marginal rate of tax and no CGT exemption can be used.  To make matters a little worse, the capital losses are still treated as capital transactions, so may not be offset against the offshore income gains (but can be used against other capital gains). A horrible quirk of the rules!

I would like to add some comment in relation to MikeUK’s situation.

As a UK resident US citizen, the general position is that dividend and other income are taxable in the UK with credit in the US for UK tax. In other words, the UK has primary taxing rights. The following note outlines the position for dividend income.
http://www.trustedtaxadviser.co.uk/inform-detail.php?page=111
Therefore MikeUK might wish to prepare his UK returns promptly to obtain a suitable foreign tax credit in the US.

The comparison with using or not using the remittance basis is not always obvious. If a claim is made to use the remittance basis, then the personal allowance is not available (and neither is the capital gains tax annual exemption.) Further the rate of tax on dividends that are remitted when a claim is made for the remittance basis is higher than if the arising basis is used.

If the income from non UK sources has been mixed with “clean capital” it should be remembered that there are detailed rules to determine what type of income or gains are treated as having been remitted.

Finally, if MikeUK has been resident in the UK for two years, he may find that he is liable to interest and penalties on the late notification of liabilities, submission of returns and payment of tax.

Hi all,
Thanks for the responses and the advice! I ended up pulling 20 years of statements and calculating the cost basis in GBP for everything. A lot of work but it's done now. And have learned that using the remittance basis won't save me any money so things seem a lot simpler. Another question has come up but I'll start a different thread... Thanks!