Foreign exchange issues

By Tolley

The following Corporation Tax guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Foreign exchange issues
  • Introduction
  • FX differences v fair value movements
  • Basis of taxing FX movements on monetary assets and liabilities
  • Exchange rates
  • Exceptions to the general rule ― overview
  • Reliefs and exemptions
  • Anti-avoidance measures
  • Overseas tax liabilities
  • Disallowable expenditure
  • Capital expenditure expensed for accounting purposes
  • Computations in a currency other than sterling
  • Conversion to IFRS or new UK GAAP


Foreign exchange (FX) movements are generally taxed following the rules applicable to the underlying income, expenditure, asset or liability on which they arise, broadly as follows:

Capital assetsOn a realisation basis (ie on disposal) following the rules applicable to the taxation of chargeable assets ― see the Corporate chargeable gains guidance note
Capital liabilitiesOutside the scope of corporation tax
Monetary assets and liabilitiesAs income, on the basis on which they are recognised in the accounts, under the regimes governing loan relationships, relevant non-lending relationships, or derivative contracts in CTA 2009, ss 298–710 (Pt 5–7) ― see the Loan relationships ― scope and definitions and Derivative contracts guidance notes for more detailed background information regarding these regimes

The remainder of this guidance note focuses on FX movements arising on monetary assets and liabilities. Associated HMRC guidance notes can be found in CFM61000.

FX differences v fair value movements

FX differences are translation differences and should not be confused with fair value movements, as the tax treatment applicable to each is not always the same.

An FX gain / loss is defined in CTA 2009, s 475. It is the difference between the carrying value of an asset / liability denominated in one currency when

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