Foreign currency bank accounts (FCBA’s) are assets, the disposal of which gives rise to either a capital gain or capital loss, and they are taxed in the same way as any other gain or loss arising on the sale of other chargeable assets.
Over the years, many farmers and landowners have chosen to receive their Single Farm Payment (SPF) in euros and to hold the money in a FCBA. This is because the SPF is calculated in euros and, if a farmer chooses to be paid in sterling, the amount will be converted according to the European Central Bank exchange rate set in September each year. Electing to be paid in euros will mean a farmer has a variety of choices as to how and when they wish to manage their payment and they can benefit from timely currency exchanges to ensure they achieve the best possible exchange rate.
Andrew Arnott, a partner of Saffery Champness Landed Estates & Rural Business Group explains that: "Having profited from beneficial exchange rates for their businesses, this has lead some farmers, landowners and trustees to set up private FCBAs to receive some of their personal income.
"However, FCBAs have always caused difficulties in computing gains or losses because any withdrawal from a FCBA is treated as a disposal, and any funds deposited in a FCBA is treated as an acquisition. If FCBA transactions are frequent then the computation of gains or losses can be extremely complex.
"HM Revenue & Customs have been aware of these difficulties for some time, and in December last year they announced that from 6 April 2012 onwards gains arising on withdrawals of money in FCBA’s will not be liable to capital gains tax (CGT), and capital losses will not be allowable losses.
"This new measure only applies to individuals and trusts holding FCBA’s, as any foreign currency gains or losses arising within a business activity are treated as trading income or trading expenditure respectively", Andrew Arnott concludes.
Saffery Champness is advising those presently holding FCBA’s that there is a tax planning opportunity based around the commencement date of 6 April. Broadly speaking those holding FCBA’s that are pregnant with gain should not realise them until after 5 April 2012 (thereby ensuring the gain is not taxable), and conversely those holding FCBA’s that are standing at a loss should realise them before 6 April 2012 (in order to crystallise an allowable loss for CGT purposes).
