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The Remittance Basis

Volume 502: debated on Wednesday 16 December 2009

I am announcing today the Government’s intention to present to Parliament proposed changes to the capital gains tax rules which will be legislated as part of Finance Bill 2010. These changes prevent the creation of capital gains tax losses which arise in certain circumstances from transactions of foreign currency bank accounts and will be effective from 16 December 2009. HM Revenue and Customs will publish on their website at:, precise details of the changes as soon as possible.

The changes affect individuals who are liable to tax on their foreign income and gains on the remittance basis. These individuals are liable to income tax on the sterling value of the amount remitted at the time of remittance. If the remittance takes the form of a transfer from a bank account in a foreign currency, they will simultaneously dispose of a corresponding part of that account and a capital gain or loss might arise as a consequence.

Associated with this change, I can confirm that HM Revenue and Customs accept that an existing capital gains tax rule in section 37 of the Taxation of Chargeable Gains Act 1992 removes any element of double tax charge in this situation. The income remitted is fully taxable (subject to any exemption which might apply), but a double charge to tax is avoided by this rule which excludes the income amount from the disposal proceeds used to calculate the capital gain or loss.

It is now clear that the rule goes beyond preventing a charge to capital gains tax and does not produce a fair outcome. Where the remittance is all treated as income, the rule creates capital gains tax losses that are far in excess of any real loss which the individual incurs. Where the remittance is partly income, the rule either creates an excessively large loss or reduces the taxable gain below the real level of gain.

The proposed legislative change will correct this defect in the current rules. Where a remittance comprises wholly income, the change will eliminate the loss arising under the current rule. Where a remittance comprises only partly income, the loss attributable to the income element of the remittance will again be eliminated. In addition, the allowable cost attributable to the non-income element of the remittance will be adjusted to ensure it corresponds to the amount of that part of the remittance. Where necessary, the allowable cost of the bank account will also be adjusted to ensure it corresponds to the amount remaining in the bank account after the remittance.

The result of these changes will be that a double tax charge will be avoided and no relief will be given where no actual loss has been incurred.