Updated November 2009
If you live and work in the UK but your country of domicile is not the UK you may get caught by an unwelcome effect of the recent changes to tax legislation in the UK.
Foreign gains and losses from transfers between foreign bank accounts are subject to capital gains tax (CGT). However H M Revenue & Customs have confirmed that a taxpayer may treat all bank accounts in his or her name containing a particular foreign currency as one account and disregard direct transfers among such accounts for CGT purposes.
A problem arises as the above concession does not apply to non-domiciled individuals.
Prior to the introduction of the remittance basis charge the potential CGT charge did not cause many problems as non-domiciled individuals were only taxed on a remittance basis on chargeable gains. Movements between offshore bank accounts would not constitute a remittance and as such were not in the charge to UK tax. Alternatively, those who were taxed on an arising basis would still have their annual exempt amount for CGT purposes to cover any chargeable gains. Unfortunately as those who are taxed on the remittance basis are no longer entitled to this annual exemption they could potentially become taxable on any net foreign exchange gains made in the tax year on funds remitted to the UK.
This means that if a non-domiciled individual is taxed on an arising basis with currency in the home bank account (ie outside the UK) they will have a disposal of foreign currency every time money is spent from that bank account. If the exchange rate were fixed, there would be no gain or loss but with a weak pound, every time a euro account is used for any expenditure, Euros are essentially sold and a foreign exchange gain occurs.
If you feel you may be affected by this issue please call to discuss your vulnerability to a CGT charge.