In Howard & Monique Rawlings v HMRC [2022] TC08384, a couple failed in their attempt to claim that foreign exchange differences on a foreign currency mortgage were an allowable adjustment for Capital Gains Tax (CGT) purposes.

  • The Appellants purchased a property in Switzerland in 2006.
  • The property was part-funded by a Swiss franc mortgage.
  • The property was sold at a gain in 2016.
  • The Appellants' CGT calculation included an adjustment reflecting the fact that foreign exchange movements had increased the sterling equivalent of the Swiss franc mortgage between acquisition and disposal reducing the economic gain. The gain returned totalled £39,433.
  • HMRC opened an enquiry into Mr Rawlings's tax return and issued a Closure Notice disallowing the foreign exchange adjustment. The total amended gain was £267,207.
  • HMRC then issued a Discovery Assessment to Mrs Rawlings as the property was jointly owned.
  • The taxpayers Appealed to the FTT.

The FTT dismissed the appeal finding the Foreign Exchange adjustment was not allowable in calculating the gain as:

  • The acquisition, the acquisition costs and proceeds received needed to be converted into sterling on the dates they were received or incurred.
  • Deductions can only be made in calculating a chargeable gain if they are incurred wholly and exclusively in (s.38 TCGA 1992):
    • The acquisition of the asset.
    • Connection with the acquisition or disposal of the asset.
  • The case law dictated that the repayment of a mortgage was not an allowable expense within s.38 and the foreign exchange adjustment was not therefore allowable.

Comment

The tribunal agreed that the correct calculations were a “square peg which HMRC was seeking to bash into any vaguely square hole”, however, HMRC were only doing so because that is what Parliament directed.

Useful guides on this topic

Foreign Currency Gains
This guide provides a brief overview of the taxation of foreign currency. It is a complex area, with specific circumstances giving different results. 

Closure notice
When does HMRC issue a Closure Notice? Can a taxpayer demand one? Are there appeal rights? 

Discovery assessment
When can HMRC issue an assessment outside of the normal statutory time limits? What conditions must be met? What are your rights of appeal and defences?

Discovery Assessments: At a glance
This is a freeview 'At a glance' guide to Discovery Assessments.

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

External links

Howard & Monique Rawlings v HMRC [2022] TC08384


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