UK Tax Question

[emretezel]

Hi everyone,

Just want to confirm something.

For UK capital gains tax purposes, assume I buy 1 futures contract in USD and 1 month later I sell the contract. The GBP.USD fx rate would be different when I bought and sold.

How should I calculate the gain or loss in GBP for tax purposes? (Even though I don't convert GBPs into USDs in the spot market)

Thank you all,
Emre

[robcarver17]

The initial COST of a futures contract is just the commission. You should technically convert that into GBP at the rate prevalant when you open the trade, but obviously that's second order

Then you realise a gain or loss when you close the position. You convert that gain or loss into GBP at the rate prevalent when you close the trade.

Are you aware of this?

[emretezel]

Hi Rob,

Hope you are doing well. Thanks for the reply, yes I agree with above, also found in HMRC forums official replies supporting this argument.

I am aware of your tool, and have been using it for many years. I noticed this year that due to some changes on HTML reports by IB, the script does not work. I am not sure whether you have run into an issue. Hence, I decided to write my own tool here.

One area I am not 100% sure on how to calculate gains is forex transactions. Imagine this scenario that I buy 100 GBP.USD and then in the future I sell 100 GBP.USD. If you convert proceeds into GBP in each leg using the fx rate at which the trades are executed, they would both be +/- 100 GBP and cancel each other. However in $ terms you could be making a profit or loss.

I have decided to use the fx rate at closing and convert any foreign currency gains and losses into GBP. This produced the closest result to your tool.

Best regards,
Emre

[vishalg]

Question wasn't addressed to me but I am in a similar situation - ib_insync (and its successor ib_async) has an implementation for parsing IBKR XML statements, which I have found to be fairly robust and that's what I use to generate the list of trades. Tax rules have some idiosyncracies (e.g. S104 pool calculations) and from my reading of the CGT manual it is not entirely clear how to treat a short positions. Also, I have been told that any interest received/paid on margin balances can be treated as part of capital gains calculations rather than be subjected to income tax as interest income. I also trade options which have a further few complications - tax returns are no fun! Depending on your situation, it may be worth getting an adviser to validate calculations at least once before you can script their calculations.