The euro: Frequently Asked Questions about the euro - Specialised Technical Issues
Contents
- Do currency fluctuations on a euro bank account held by a UK resident individual or company have to be returned?
- How is Stamp Duty calculated on share capital denominated in euro?
- Are there any tax consequences for converting share capital, assets or contracts into euro?
- Will the Revenue regard the automatic conversion of shares to euro as a redemption of shares in which case tax will have to be paid?
- Does the replacement of certain European currencies with the euro constitute a chargeable disposal under Capital Gains Tax rules for the disposal of foreign currencies?
Q. Do currency fluctuations on a euro bank account held by a UK resident individual have to be returned?
A. No. The movements in value of balances in a euro account arising from currency fluctuations do NOT have to be reported for tax purposes.
Withdrawals from the account may give rise to gains chargeable to Capital Gains Tax, or to allowable capital losses. However, if the balance in the euro bank account represents currency that has been acquired for personal expenditure outside the United Kingdom for the individual or their family or dependants, there will be no Capital Gains Tax liability on any withdrawals. This includes currency acquired for expenditure on the provision or maintenance of any residence outside the United Kingdom.
The same rules would apply for any foreign currency bank accounts that
are held in the UK.
Q. How is the stamp duty paid on a transfer of share capital denominated in euro?
A. If a company has its share capital denominated in euro or any
other currency, it is of no direct concern when calculating UK stamp duty.
Stamp duty is charged on the "consideration" paid to purchase
the shares, so it is the price that is relevant and not the currency denomination
of the shares.
If the purchase price is paid in sterling, then Stamp Taxes will charge
duty at 0.5% of that price. If the purchase price is paid in euro or any
other non sterling currency, then duty is payable at 0.5% of the sterling
equivalent of the purchase price, using the exchange rate at the date
of the transaction.
Q. Are there any tax consequences for converting share capital, assets or contracts into euro?
A. Under current law there are sometimes tax consequences if assets or contracts are converted from one currency to another. You will not usually have to pay more tax as a result of conversion as long as the original currency is of a country from the euro area.
Q. Will the Revenue regard the automatic conversion of shares to euro as a redemption of shares in which case tax will have to be paid?
A. As far as chargeable gains are concerned, the consequences of changing a company's share capital from nominal value in £ to € are exactly the same as a change from £ to any other foreign currency. A straightforward re-denomination of shares from £ to € would be classed as a "reorganisation" within s.126 TCGA 1992. This would not be regarded as a disposal for the purposes of capital gains tax. Instead shareholders would roll over the cost of the £ shares into the "new" € shares.
Q. Does the recent replacement of certain European currencies with the euro constitute a chargeable disposal under the normal Capital Gains Tax rules for disposal of a foreign currency (other than for personal use)?
A. There are no Capital Gains consequences when a holding of a euro-area currency is converted to euro.
(This is provided for in The European Single Currency (Taxes) Regulations 1998 (SI 3177 of 1998) which can be accessed on the HMSO web-site.)
Where a holding of a "legacy" currency is converted into euro, this is not treated as a disposal of the original currency for Capital Gains Tax purposes. Instead, the euro is treated as being the same asset as the original currency, acquired at the same time. This covers the situation where notes, coins or travellers' cheques in a "legacy" currency are swapped for an equivalent amount of euro.
Where there is a "euro-conversion" of a debt that someone owes to you, again this does not represent a Capital Gains Tax disposal. An example of this would be where you have a bank account in a euro-area currency and it is either re-denominated in euro, or closed and the balance transferred to an "equivalent" euro account. In this situation the old account and the new euro account are treated as the same asset. (Note: "equivalent" here means an account with (so far as is reasonable) the same terms and conditions.) So there would be a chargeable disposal if, for example, your bank closed a French franc current account and transferred the balance to an interest-bearing euro investment account. (Further details can be found in the definition of "euro-conversion" in Regulation 3).
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