When I came to the UK I had a small amount still invested in the US in what turned out to be a non-reporting fund. I have claimed remittance basis as any income (dividends, CG distributions) have much less than £2000. However now I need the money in the UK, and it seems a bit confusing how to handle the exchange rate fluctuations when calculating what I owe HMRC now that I have remitted the funds.
It appears that the gain at disposal is calculated in GBP terms the same way as a normal capital gain (at least according to
https://www.cii.co.uk/knowledge/life-pensions/articles/my-pfs-technical-news-21062016/42277 [nofollow] ), but then the gain is placed in the "relevant foreign income" pool of a mixed pool for remittance purposes (
https://www.gov.uk/hmrc-internal-manuals/offshore-funds-manual/ofm15500 [nofollow] ), which is tracked in local currency until the date of remittance.
I know things can get very complicated for people with complex investments so I came up with an example with simple numbers that is closer to my circumstances:
Date A:
• Exchange rate: $2.00/£
• Start with Clean capital: $20k (£10k)
• Purchase $20k (£10k) of shares a non-reporting fund
Date B:
• Exchange rate $1.50/£
• Sell the non-reporting fund shares for $30k ($20k) and place the proceeds in an empty foreign bank account (which becomes a mixed fund at this point)
• As OIG due to disposal of non-reporting funds, like CG, is calculated using GBP spot rates at time of purchase and sale, thus the resulting OIG is: £20k - £10k = £10k, which equates to $15k at on the date of disposal
• The mixed fund thus contains $30k, composed of a pool $15k of "relevant foreign income", and $15k of clean capital
Date C:
• Exchange rate $1.20/£
• Remit the entire $30k from the foreign bank account to the UK
• The remittance of £25k is composed of £12.5k of "relevant foreign income", which is taxable as income, and £12.5k of clean capital
It seems slightly strange to calculate the foreign gain in GBP and then convert it back to USD only to convert it a third time at remittance, so I'm wondering if anyone who has been in a similar situation could let me know if I'm on the right track?
Thanks!
