Profit Disparity

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1

I have a query on how the cost value is calculated when selling shares. I am sure trading212 are doing things correctly, I just want to understand better. My understanding is that the cost would be:

(average cost per share x No. of shares) - FX Fee
If converting from USD, there will be an exchange rate applied before deducting the FX fee.

I have an example of a recent sale below, which is why I am querying this.

My average price was $167.68.
I sold at $222.87.
The number of shares sold were 250.

Cost
250 x $167.68 = $41920

Sell Price
250 x $222.87 = $55717.5

Profit = $55717.5 - $41920 = $13797.5

An exchange rate of 1.27776 was applied.
$13797.5 / 1.27776 = Ā£10798.19

And there was FX Fee of Ā£65.41

Ā£10798.19 - Ā£65.41 = Ā£10732.78

However, I have only been given Ā£9674.50 profit.
Where has the difference of Ā£1058.28 gone?

If you can help me understand Iā€™d be incredibly greatful.

2

I am interested in seeing the answer. However, just a quick comment: Are you considering the fx rate on the purchase. Whilst you hold the shares the fx rate could go against you and thus reduce the profit

3

Iā€™m anticipating thats what it will be. I didnā€™t mention it in the post because the cost is not listed anywhere on the sale details.
It does mention within the ā€˜your investmentā€™ page the current FX Impact.
If it is this, itā€™d be nice to have it listed as a cost once the sales goes through.

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4

  1. You cannot apply a single exchange rate to the USD gain. You need to take account of the gain in GBP by using the different exchange rates at times of purchase and sale. In your history you can see the exchange rate that was used when purchasing.

  2. The T212 exchange fee cannot be taken as a deductible cost for the purpose of computing UK capital gains tax.

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5

I may be wrong but I thought that fx costs are deductible costs for capital gains tax purposes. They are a necessarily cost in the transaction. It doesnā€™t apply to me because my gains are in an ISA (or SIPP) so Iā€™ve never had to deal with the situation but my understanding is that fees that are part of the transaction are deductible

edit: the legislation says that allowable deductions include ā€œthe incidental costs to him of making the disposalā€. FX fees are incidental costs necessary and solely incurred for the purpose of the share purchase and disposal. Thus as far as I can tell they are allowable deductions for CGT but Iā€™m no expert

6

I once asked on the HMRC forum about this and was told fx fees are not allowable costs. I was told that only broker buy/sell fees are deductible, such as the Ā£3.99 per trade charged by Interactive Investor.

They consider the fx transaction not to be a necessary part of making the disposal. This is evident from the fact that you are not forced to incur the FX fee. You can sell 10 shares Apple for USD and then use those USD to buy shares in META. The eventual exchange of USD into GBP is a seperate matter.

Mind you, I am not convinced the HMRC agents always give accurate advice on the forum pages. It seems to me a grey area. It is not specifically addressed in the HMRC web pages or CGT manual. One could choose to include the Trading 212 fx fee as a cost and wait to see if HMRC ever question you about it. Since the lost tax would be 20% of 0.15% of the gain, there is only Ā£3 tax at issue for each Ā£10000 of taxable gain, whereas the tax itself is Ā£2000. Will HMRC quibble about Ā£3 + or - in Ā£2000?

I have also read advice on taxationweb.co.uk that also says that fx fees are not allowable costs.

Is anyone reading this a tax accountant?

7

Hi. I am not an expert and I am not saying that I am right but I would argue that fx fees are deductible.

You example of selling shares A and buying B without a conversion to GBP is an interesting one but personally I donā€™t see that it defeats the argument that fx fees are deductible for cgt purposes. If you solely sell A then to get the money back to GBP the fx fees are necessary and wholly incurred in respect to the transaction - they donā€™t in any part relate to any other transaction. For HMRC you have to value the gain in GBP so there is a question how you value the gain of selling A if you leave the proceeds as USD.

That aside, the question has been specifically asked: Are FX fees (foreign exchange) an allowable deductible cost? - Community Forum - GOV.UK (hmrc.gov.uk)

HRMCā€™s answer doesnā€™t help that much. However, if you go back to the legislation that the answer refers to I think the situation is clearer. TCGA92/S38 says that the cost of an asset are what is paid ā€œtogether with the incidental costs to himā€ which would include fx fees and in respect to the disposal it says ā€œthe incidental costs to the person making the disposal of the acquisition of the asset or of its disposal shall consist of expenditure wholly and exclusively incurred by him for the purposes of the acquisition or, as the case may be, the disposal, being fees, commission or remuneration paid for the professional services of any surveyor or valuer, or auctioneer, or accountant, or agent or legal adviser and costs of transfer or conveyanceā€. fx fees are incidental costs necessary for the acquisition/disposal and are fees paid to an agent (T212) and part of the costs of transfer or conveyance. Taxation of Chargeable Gains Act 1992 (legislation.gov.uk)

Edit: Can any accountants clarify?

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8

This is fairly helpful: Tax when you sell shares: Work out your gain - GOV.UK (www.gov.uk)

It makes it clear that you can deduct costs incurred in both the purchase and sale of the shares. The calculator is fairly clear as well

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9

I see. That makes sense. Thanks

10

Thank you the input from everyone. Its really appreciated