Interesting Capital Gains Tax question

D

donny

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Just want to double-check this somewhat interesting CGT situation with the more expereinced people here (this is my first CGT experience really :) )

I am a PAYE employee.

Some years ago I converted some of my saving from euro into pounds sterling (from one bank account to another). That was a bad idea, as the exchange rate went downhill over the next couple of years. Finally I had enough of it and bought some investment gold with all the pounds. At that point I think I had a loss from CGT point of view (but I never submitted any returns to Revenue as it was a loss, so no tax was due).

The gold did better, and I sold some of it with a profit this year, and now need to pay some CGT. So my question is, can I deduct the losses for my previous EUR->GBP investment in my current CGT calculations (even though I didn't declare the losses at the time)?

Your opinion is much appreciated.
 
No answers.. Strange, I thought this scenario is just one step above a typical CGT situation!

From reading other sources it looks like I should be able to deduct the previous years losses, but would probably need to submit CGT returns for the years where I had them. Could someone confirm/deny that my understanding is correct?
 
I'm not sure that converting from one currency to another constitutes a capital loss. No asset has been sold and so no capital loss has taken place.
 
It seems that foreign currency is definitely an asset. From the Revenue website:


[19.1.14A] Foreign Currency Gains/Losses arising otherwise than in the course of a trade

Under Section 532 any currency other than Irish currency is an asset for the purposes of capital gains tax. Accordingly, a chargeable gain/allowable loss can arise to a person buying and selling foreign currency otherwise than in the course of trade. That gain/loss is computed by reference to the corresponding euro value of the purchase price and the sale proceeds.
 
That's all fair enough but you didn't actually sell any sterling. You converted from euro to sterling and then to gold.
 
Yep, that's the part I am looking to clarify, but as far as I can see, sterling is an asset for CGT purposes, so when I bought gold with sterling, I have effectively sold that asset. Otherwise at what other point was that asset sold? I obviously don't hold it any more, so it must be considered sold at some point. It can't just disappear :)
 
You don't have to "sell" an asset to dispose of it for CGT purposes though.

The value of it has been realised, which is all that matters here.

The base cost of the gold acquired for CGT purposes will be the Euro equivalent of the Sterling cost. Equally the CGT loss realised on the acquisition of the gold will be based on the Euro value of the sterling at the time of the transaction.

It's no different than if the OP had bought sterling denominated shares/assets, held them for a period, sold them at their sterling face value and immediately bought gold with the proceeds. For CGT purposes all of the transactions are converted to the Euro value.
 
Thanks, mandelbrot! So the bottom line is I can deduct the losses I took on sterling from the profits I made from gold? Would you know if it matters that I didn't report the sterling losses at the time?
 
donny said:
Thanks, mandelbrot! So the bottom line is I can deduct the losses I took on sterling from the profits I made from gold?
Click to expand...

Yep, I can't see why not.

donny said:
Would you know if it matters that I didn't report the sterling losses at the time?
Click to expand...

No, I don't see why it would matter, your entitlement to relief for a CGT loss doesn't depend on whether or not it was previously disclosed. Technically your earlier income tax returns (if any) are arguably incomplete/incorrect, but there's no loss to the exchequer so it's a non-issue.
 
And bear in mind as I said previously, you DO NOT take the sterling amount of your gain (i.e. bought 10oz gold at £5,000 and sold at £6,000 = gain of £1,000).

The correct way is bought for £5,000 on xx/mm/yy when the Euro equivalent was €6,300.

And sold for £6,000 on zz/mm/yy when the Euro equivalent was €8,000.

So your gain is NOT the £1,000 you made, it's the €1,700... (effectively your gain includes your gain on the underlying foreign currency, which as we all now know is an asset for CGT! ;) )
 
Yep, that's the way I am doing my calculations, it is just in my case instead of a gain in underlying currency I have a loss.. :) So I like your example more than mine :)
 
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