Does Exchange Rate Affect CGT on US Shares?

The same trade in dollars and in pounds

Capital Gains Tax is worked out in pounds. For shares bought with US dollars, HMRC's manual says the cost is the sterling equivalent of the dollars at the exchange rate on the day you bought. The proceeds, meaning what you got for the shares, are the sterling equivalent at the rate on the day you sold. The gain is the difference between those two sterling figures. CG78310 sets this out.

HMRC's staff are told not to accept a gain worked out in dollars and then converted at the rate on the sale date. So the dollar profit on your broker's statement is not the figure that goes on your return.

How the exchange rate moves the gain

Two things move the sterling gain: the change in the share price, and the change in the exchange rate between your two dates. When the dollar weakens against the pound, your dollar proceeds buy fewer pounds than your dollar cost did. That reduces your gain in pounds. When the dollar strengthens, it increases it.

Say you bought 100 shares in Company A for $5,000 when the rate was $1.25 to £1. You sold them for $5,600 when the rate was $1.60 to £1.

The reverse happens too. Say you bought 100 shares in Company B for $6,000 at $1.50 to £1, and sold them for $7,200 at $1.20 to £1.

A loss like the first one is a real loss for Capital Gains Tax. It can be set against other gains in the same way as any other loss, as the guide to capital losses on shares explains.

Which exchange rate to use

HMRC doesn't name a source for exchange rates. Its manual says a reasonable and consistent method is what it expects. You could use the rate your broker applied on each trade, or a published rate for each date, but pick one approach and use it for every trade.

Your broker's statement may show the pound value already, if the platform converted your money. If it does, that is a good place to start, but check it is the value on the trade date and not the date the statement was produced.

Buying more than once

If you've bought the same shares several times, each purchase is converted into pounds on its own date. Those sterling amounts go into the pool, which is the running total of your shares in the company and what they cost, with an average cost per share. The pool is kept in pounds. The Section 104 guide covers how it works. GOV.UK describes the average cost method in its guidance on selling shares in the same company.

Say you bought 100 shares in Company A for $5,000 at $1.25 to £1, and later another 100 for $6,000 at $1.50 to £1. You then sold 100 for $7,000 at $1.40 to £1.

If your US shares came from your employer as RSUs, the sterling cost is the amount taxed as income when they vested. Our guide to RSUs and Capital Gains Tax covers it.

Currency gains inside a share sale, and the dollars in your account

For US shares, the currency effect is already inside the sterling gain. You don't calculate a separate gain on top of it for the share sale itself.

The dollars in your broker account are a separate question. HMRC's manual treats foreign currency as an asset in its own right, and disposing of it can give a gain or a loss. There is an exemption for currency you acquire for personal spending abroad, but it doesn't cover currency received as income, dividends included. HMRC's pages on foreign currency and the personal spending exemption say this, but they don't say how it applies to cash held in a broker account. That is a grey area, so if you keep dollars in the account between trades, ask an adviser.

The sterling gains and losses for the tax year are reported as the Self Assessment guide explains, and taxed as the guide to how Capital Gains Tax works describes.

If you're unsure, get advice

This guide explains the rules, not your own position. If you aren't sure how they apply to you, ask a qualified tax adviser or accountant before you file.

Get help in these cases:

• Your gains are large.
• You hold dollars in a broker account over time, or move them between accounts.
• You're not UK resident.
• The shares are held through a trust or a company.

The currency questions are easy to get wrong, and the amounts can be big.