Is it best to notify HMRC in advance of remitting capital-only funds to UK?

I concur that it is conceivable that previous UK returns might have claimed the remittance basis in error, claiming that the OP was domiciled outside the United Kingdom; given that s/he returned to the UK for retirement and remains permanently settled here.

To minimise penalties it might be worth amending prior UK returns to declare and pay UK tax on the arising basis using HMRCs new worldwide disclosure facility:
https://www.gov.uk/guidance/worldwide-disclosure-facility-make-a-disclosure

The advantage of doing this now would be that any penalties would be low, and amounts that are currently offshore can then be remitted to the UK free of additional UK tax.

The proposal to change retroactively from a paid FTC to an accrued FTC for US purposes, appears to be contrary to IRS Chief Counsel's interpretation of US law, so would be a high risk strategy: http://www.ey.com/gl/en/services/tax/international-tax/alert--us-irs-holds-cash-basis-taxpayer-may-not-elect-accrual-method-for-claiming-foreign-tax-credits-on-amended-return
https://www.currentfederaltaxdevelopments.com/blog/2015/8/28/cash-basis-taxpayer-who-has-not-elected-accrual-option-for-foreign-tax-credit-reports-later-assessment-for-credit-purposes-in-year-paid
http://www.wiss.com/article/recent-updates-you-should-know-regarding-foreign-tax-credits-ftcs
Consequently any additional UK tax paid would be claimed in the current year Form 1116 in the general, passive or treaty resourced basket.

The analysis under Q1 is correct. The UK liability is on a combination of income/gains on the arising basis plus remittances of past unremitted income/gains. The gains must of course be calculated in sterling terms, using exchange rates at purchase and sale.

Regarding the FX rates to use to calculate a Cap Gain remitted to UK years after the actual sale (taxed on the remittance basis).  Possible FX dates to use would seem to be the Purchase Date and then either the Sale Date or the Remittance Date. 

Should the Cap Gain be calculated using the FX based on the Sale Date (as mentioned above) or on the Remittance Date?

The two main points in Guya’s reply are excellent.

On the issue of domicile, the fundamental point is that domicile is not a matter of choice. Domicile is determined by applying established legal principles to the relevant facts. Case law shows that a returning UK citizen is likely to be re-establish a domicile of origin in the UK on returning here for any length of time. It is only if there is a domicile outside the UK that the tax rules give a choice of using the remittance basis.

The disclosure facility offers the most painless way of paying any additional tax, if this were appropriate. HMRC apply a risk assessment basis when reviewing any disclosures. 

The EY summary on US foreign tax credits is helpful. The summary talks about a cash basis taxpayer. Is that the usual or default position for US tax? I would be interested if others could enlighten me on this.

Taking the two matters together, whether or not cvc8445 revises the past UK returns, there will be a mismatch under US foreign tax credit rules. I would also be interested to understand whether there is any practical value to the mismatched credit in the US.

The exchange rate point is straightforward. For UK tax purposes, the exchange rates at the time of purchase and the time of sale must be applied to the cost and sale proceeds, respectively. This is confirmed by case law. See also HMRC manuals at CG78310. The value of the amount remitted will of course be calculated at the date of the remittance.
 -

The EY summary on US foreign tax credits is helpful. The summary talks about a cash basis taxpayer. Is that the usual or default position for US tax? I would be interested if others could enlighten me on this.

I read recently that the cash based method for FTC's in the US is the most common method.

        there will be a mismatch under US foreign tax credit rules. I would also be interested to understand whether there is any practical value to the mismatched credit in the US.

Agreed on the mismatch.  Perhaps a UK SIPP contribution ("gains") could use these US FTC's that have carried-forward?  (UK SIPP is treated as a foreign trust by US and needs annual US tax paid on "gains".)  Any other ways?

The exchange rate point is straightforward. For UK tax purposes, the exchange rates at the time of purchase and the time of sale must be applied to the cost and sale proceeds, respectively. This is confirmed by case law. See also HMRC manuals at CG78310. The value of the amount remitted will of course be calculated at the date of the remittance.

Assume:
 -- Buy Date = 6/6/2009 with (hypothetical) GBPUSD FX = 1.50.  Cost = 1000 GBP
 -- Sell Date = 8/8/2012 with (hypothetical) GBPUSD FX = 2.00.  Proceeds = 1500 GBP so Cap Gain at this date is 500 GBP.
 -- FX conversion happens on 2/2/2017 at a "better rate" giving 800 GBP from the previous dollar gain.
 -- Remittance of the 500 GBP on 3/3/2017 -- (taxed to UK Cap Gains Tax)
 -- Remittance of the other 300 GBP on 4/4/17 (taxed in UK how?)

How is the other 300 GBP taxed in UK after remittance?

I would like to add some comments to cvc8445’s example.

I think that the fund on which the calculations are made would include the whole sale proceeds. I do not think that it is possible to separate the gain from the proceeds of sale.

In the example, the whole of the gain (calculated in sterling) has been remitted to the UK and is then taxed. The UK does not tax gains on foreign currency accounts. There is therefore nothing further to tax in the UK.

The UK does not tax gains on foreign currency accounts. There is therefore nothing further to tax in the UK.

Thanks.  I note that some changes were made in 4/2012 (?)  So (from my example) is it correct to say a UK taxpayer (on remittance basis) would not have to pay CGT (or Income Tax?) on the £300 FX gain made in the final 4-1/2 years (if remitted in either GBP or USD into a UK account)?

Another scenario:
1550 USD sits in a US brokerage account on the day the taxpayer becomes UK resident (+Non-Dom/Remittance Basis).  That was worth 1000 GBP on that date.  This is a brokerage account full of cash (after stocks had been sold previously) from a "life in the USA" (not an FX trading account e.g.)

It is remitted to UK 5 years later as "clean capital" (in either GBP or USD).  It is now worth 1200 GBP.  Is UK Tax due on the 200 GBP FX gain?  (based on the HMRC link below I'd say its not taxable?)

Is there any difference in the tax treatment of the FX gain if that same US account might be regarded as having had commingled funds?  (based on the HMRC link below I'd say the final FX cash gain on remittance is not taxable?  Similar to the 300GBP example previously?)

=======
Where the taxpayer has invested in assets that are denominated in a foreign currency, care is needed over foreign exchange gains realised on the disposal of the asset. There is an exemption for gains on foreign currency acquired by the holder for personal expenditure outside the United Kingdom, but it does not extend to foreign currency held for any other purpose. -- http://taxsummaries.pwc.com/uk/taxsummaries/wwts.nsf/ID/United-Kingdom-Individual-Other-taxes
=======

This seems to be clearer, and as Dunedin stated:
=======
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg78315

Foreign currency: personal expenditure of individuals
TCGA92/S269

A gain on the disposal of foreign currency acquired by individuals for the personal expenditure outside the United Kingdom of themselves and their family or dependents is not a chargeable gain. This includes expenditure on the provision or maintenance of a residence outside the United Kingdom.

TCGA92/S269 applies only to foreign currency which was specifically acquired for personal expenditure of this kind. If remuneration, interest, dividends or other sums are received in foreign currency, then that foreign currency has not been acquired for the purposes specified in Section 269: it has not been acquired for any specific purpose at all, but simply as remuneration or interest etc. On the disposal of such foreign currency there will be a chargeable gain (or allowable loss) calculated in the normal way.
==========