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 David Gauke David Gauke The Exchequer Secretary 9:30, 14 Mehefin 2012

Clause 35 will simplify the capital gains tax rules on foreign currency bank accounts. It takes the gains and losses on bank accounts in a foreign currency out of a charge to tax. It will relieve people from a considerable administrative burden that, in many cases, is disproportionate to the amount of tax involved.

Under the current capital gains tax rules, capital gains and losses can arise on bank accounts in any foreign currency. That is because CGT calculations must be done in sterling. Therefore, if someone holds a bank account in, say, euros, and the exchange rate between sterling and the euro moves up or down after money is paid into the account, the account holder will realise a gain or loss each time they make a withdrawal from the account. That means that people have to keep detailed records of each and every transaction on their foreign currency bank accounts. They must work out the sterling value of funds that they put into the account and the sterling value of funds that they take out of the account, and work out the gain or loss on each withdrawal. The burden of keeping such detailed records and working out gains and losses on each withdrawal is excessive, especially as gains or losses on small withdrawals are  likely to be trivial, and over time the gains and losses will tend to balance out. Existing rules may relieve people of that burden where the account is used for personal expenditure abroad. Also, HMRC allows people to adopt a simplified approach to their calculations in some instances. However, those relaxations do not always apply and offer only limited help.

Clause 35 will remove the excessive burdens by taking foreign currency bank accounts out of the scope of CGT for individuals, trustees and personal representatives. That will mean that they will not need to calculate capital gains and losses on the withdrawals made from such accounts on or after 6 April 2012.

The change was included in last year’s consultation on the taxation of non-domiciled individuals. Non-domiciles are more likely than most people to hold bank accounts in a foreign currency and to face the burdens the current rules impose. However, the new exemption applies to all individuals, whether UK domiciled or not. Following consultation, we are extending the exemption to trustees and personal representatives of deceased persons.

The hon. Member for Newcastle upon Tyne North asked whether the proposal would open up an opportunity for avoidance and whether a loophole would be created. The answer is no, because there are existing safeguards in CGT rules that prevent abuse, for instance by stopping relief for artificial losses. Other types of currency assets, such as currency futures or options, are not eligible for the exemption.

I reassure the hon. Member for Bassetlaw that there are no tax advantages in holding euros; he can rest easy on that point. No CGT is due on bank accounts in sterling, and the measure will apply the same rules consistently to other currencies.

With that clarification, I hope that the Committee will be satisfied with the clause, which has been widely welcomed. It is worth pointing out that Deloitte has said that the clause will remove

“a frankly impossible compliance burden from unrepresented taxpayers”,

and the Chartered Institute of Taxation regards the clause as

“a victory for common sense”.

I hope that the clause will stand part of the Bill.