For Capital Gains Tax every gain must be worked out in sterling: the cost is converted at the exchange rate on the date you bought, and the proceeds at the rate on the date you sold, so currency movements can create a taxable gain or a loss even when the foreign currency price has not changed. Foreign currency itself is a chargeable asset, but since 6 April 2012 an individual’s foreign currency bank account does not produce chargeable gains or allowable losses, and currency bought for personal spending abroad is exempt.

Is foreign currency an asset for Capital Gains Tax?

Yes. Section 21(1)(b) TCGA 1992 makes currency, other than sterling, an asset. HMRC’s Capital Gains Manual at CG78300 says that disposing of it can give rise to a chargeable gain or an allowable loss, and that when currency changes hands as part of another transaction, such as selling shares for dollars, it should be recognised as a chargeable asset in its own right.

CG78305 explains that currency can be notes, coins or travellers cheques. Coins count as currency only if they are legal tender when acquired or disposed of. Coins that are currency but not sterling, such as Krugerrands, are chargeable. Sovereigns minted in 1837 or later and Britannia gold coins are sterling currency and so exempt.

These rules apply to individuals, trustees and personal representatives. CG78300 notes that companies within the foreign exchange gains and losses legislation are dealt with under those rules instead, and that cryptoassets have their own guidance; see our page on cryptoasset tax. Speculative currency trading through spread bets and contracts for difference is covered in spread betting, CFDs and forex.

How is a gain calculated on an asset bought in another currency?

CG78310 treats a purchase for foreign currency as a barter: you give currency and receive the asset. The acquisition cost of the asset is the sterling equivalent of the currency you gave, at the exchange rate on the date of acquisition. When you sell for foreign currency, the disposal proceeds are the sterling equivalent at the rate on the date of disposal.

HMRC says it should not accept a computation that works out the gain in the foreign currency and then converts it into sterling at the rate on disposal. The courts confirmed in Bentley v Pike and Capcount Trading v Evans that each amount of foreign currency must be converted into sterling at the time it is incurred or received. HMRC does not prescribe which exchange rate source to use, but expects a reasonable and consistent method.

Incidental costs paid in a foreign currency, such as overseas legal fees or agents’ commission, follow the same principle and are converted at the rate when they are paid. The rules on which costs are deductible are in our guide to allowable costs for capital gains.

What does that look like for property abroad?

Illustration only. You buy a flat in Spain for €200,000 when €1.20 buys £1, so the sterling cost is £166,667. Years later you sell it for the same €200,000 when €1.10 buys £1, giving sterling proceeds of £181,818. In euros you have made nothing, but for UK Capital Gains Tax you have a gain of £15,151, because sterling has weakened against the euro.

The reverse can also happen. If sterling had strengthened over the same period, you could have a sterling loss even though the flat rose in value in euros. The loss is calculated in the same way and is allowable in the usual way.

The gain on the flat is only part of the picture. If the euros are then held as currency, rather than in a bank account, before being converted, they are a separate asset with their own cost, which is the sterling value of the flat at the date of sale.

How are gains on the currency itself worked out?

CG78310 says that when you sell an asset for foreign currency, the acquisition cost of the currency you receive is the sterling value of the asset at that date. When you later spend or convert the currency, you dispose of it, and a gain or loss arises if the exchange rate has moved in the meantime.

CG78316 explains that foreign currency is subject to the same identification and pooling rules as shares under section 104, because currency is of a nature to be dealt in without identifying the particular units. HMRC also offers a simplified method, with your agreement, for currency bought and sold in the course of buying and selling overseas investments: all disposals of one currency in the tax year can be treated as a single disposal, using the average cost of the pool.

Do foreign currency bank accounts create gains?

Not for individuals since 6 April 2012. CG78320 and CG78321 explain that from that date foreign currency bank accounts held by individuals, trustees and personal representatives, including partners, are treated as simple debts. Under section 251(1) TCGA 1992 no chargeable gain arises to the original creditor on a debt, and section 252 now applies that rule to a debt owed by a bank in a currency other than sterling, represented by a credit balance on an account.

So moving money in and out of a euro or dollar bank account no longer needs a gain computation for each withdrawal. CG78321 adds two limits. First, the change applies only to bank accounts; other currency related assets, such as options and futures, are not affected. Second, gains that arose before 6 April 2012 may still be relevant, for example where non resident trustees made the disposal before that date.

Is currency for holidays and homes abroad exempt?

Section 269 TCGA 1992 exempts a gain on currency acquired by an individual for the personal expenditure outside the UK of themselves, their family or dependants, including the cost of providing or maintaining a residence outside the UK.

CG78315 stresses that the exemption covers only currency specifically acquired for that purpose. Currency you receive as salary, interest, dividends or other sums, such as rent or sale proceeds, has not been acquired for personal expenditure, so a gain on disposing of it is calculated in the normal way. The cost of such currency is its sterling value on the day you received it.

What about foreign currency loans and mortgages?

CG78335 explains that when you borrow in a foreign currency you acquire that currency at its sterling value on the day of the loan. Spending it, for example on an asset, is a disposal of the currency. When you later repay the loan with foreign currency, you dispose of that currency at its sterling value on repayment.

The loan itself is a liability, not an asset. Any loss on the loan caused by exchange rate movements between borrowing and repayment is not allowable. HMRC’s example at CG78336 shows someone borrowing US$100,000 worth £41,667, buying shares that cost £43,479 in sterling terms, selling them for £50,000 and repaying the loan when it costs £52,631. The shares produce a gain of £6,521, the currency produces gains of £1,812 and £2,631, and no relief is due for the £10,964 increase in the sterling cost of repaying the loan.

HMRC’s example assumes the dollars are held as currency between steps. Where the money passes through a foreign currency bank account, the post 2012 rule for bank accounts should be considered for that step. The point about the loan stands either way: an exchange loss on borrowing is not relieved, which can leave someone who financed an overseas property in the local currency with a taxable gain on the property and no offset for the higher cost of clearing the mortgage.

What if I do not have the information to do the calculations?

CG78409 acknowledges that foreign currency computations can be complex and that investment managers using several currencies do not always provide the figures needed. Where it is not possible to complete the return strictly in line with UK tax principles, HMRC says appropriate white space disclosure should be made explaining the basis on which the figures have been prepared. Our guide to estimated figures on a tax return explains how to present provisional figures.

Common mistakes are:

  • calculating the gain in the foreign currency and converting it at the end;
  • ignoring a sterling gain because the asset did not rise in value in its local currency;
  • claiming a loss on repaying a foreign currency mortgage;
  • assuming every foreign currency balance is exempt, when notes and other currency holdings remain chargeable and only bank accounts fall under the simple debt rule;
  • applying the personal expenditure exemption to currency received as income.

For the full computation and reliefs, see how Capital Gains Tax is calculated.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.