Many people misunderstand the tax rules applied when foreign assets, such as holiday homes, are sold.
If you buy a house in the USA for $250,000 when the exchange rate is £1: $1.50, and then sell the house in when the exchange rate is £1: $1.30, your base cost for UK capital gains tax purposes is £166,667 and not £192,308.
The cost is fixed using the exchange rate at the date of acquisition. This is as foreign currency is a chargeable asset for capital gains tax purposes in its own right.
When the house is purchased we look at the acquisition and disposal of the US dollars as a separate transaction. As in most cases the acquisition and disposal of the US dollars takes place in a very short timescale there is usually no gain or loss made.
However, if there is a delay in the use of the dollars or if the sale is aborted and they are converted back into sterling, a gain or loss can arise.
For more information, please contact Lesley Sutton on 01484 550037 or email firstname.lastname@example.org.