Clause 35 - Foreign currency bank accounts

Part of Finance Bill – in a Public Bill Committee am 9:30 am ar 14 Mehefin 2012.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Education) 9:30, 14 Mehefin 2012

Clause 35 relates to capital gains tax on withdrawals of money from foreign bank accounts. It is not uncommon for individuals resident in the UK to hold bank accounts in a foreign currency, perhaps because they have been paid in that currency, have sold an overseas asset or have specifically invested in a foreign currency. Normally, foreign bank accounts would be chargeable assets for the purpose of capital gains tax. However, under clause 35 gains made on withdrawals will not be liable to tax with effect from 6 April 2012. The measure is expected to decrease remits to the Exchequer by around £5 million a year. It is not expected to affect many individuals according to the impact note, only those who hold a foreign bank account.

Although non-domiciles taxed on a remittance basis are likely to be more severely affected as they are likely to use more foreign bank accounts, the aim behind the clause is clearly to reduce the administrative burden. Calculating gains or losses on such bank accounts can be time consuming and complex. Moreover, over time capital gains and losses on such transactions tend to broadly balance each other out meaning that in many cases the administrative burden is disproportionate to the tax payable or losses allowable. It is, however, possible to envisage a situation where individuals choose to  make withdrawals from their account at particular times in order to secure large net gains which would now not be liable to tax. Has the Minister explored that risk? If so, what are his conclusions?

Is it not the case that the measure could contribute to another form of tax avoidance. Another question relates to the losses that would otherwise be used to set against tax liabilities. Has the Treasury given any consideration to the potential impact on individuals who might be affected by this, particularly if they were to suffer significant unexpected losses with money held in a foreign bank account if there was, for example, an unexpected economic downturn?