Margin and forex in IB and UK tax treatment

luisHK · Oct 26, 2022

Btw if you go in the Report part of account management, than Tax, you´ll find the
FX Income Worksheet for the previous calendar year with lots of details, might find the details of forex PnL also looking for the Realized Statement.
In the main activity statement, IB gives you the total realized and unrealized PnL for each currency but not a list of the operations, the way I set it up at least.

globalarbtrader · Oct 27, 2022

joyfultrader said:
For regular stock positions in cash accounts HMRC insist that selling and buying prices are calculated in GBP first before calculating profit.

My understanding for stock positions in margin accounts (for eg, a USD denominated stock) is that the USD profit is taken first and then converted to GBP for tax purposes. One question here is can I add interest charges in cost?
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You can't add interest charges unless you are paying your tax as income tax not CGT, which is very unlikely.

joyfultrader said:
I usually trade on margin only if my cash account doesn't have enough settled cash, as a temporary measure. What I usually do is move the margin position into my cash account once cash is settled. In this case, would I have to consider the stock as having been sold in the margin account and bought back in the cash account (I don't think IB statements or flex queries reflect this)? Because, otherwise it would be impossible to calculate tax based on the rules above.
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No. It's only actual buys and sells that crystallise your CGT. Moving holdings between accounts has no effect.

You use the FX rate on the day of a buy or sell to calculate the acquisition cost and therefore profit.

joyfultrader said:
Another question here is with regard to Forex. HMRC appears to treat anything gained on anything other than GBP to be added to the total. So this means if I'm keeping money in USD and then using that USD to buy stock, and later on sell that stock, I would have to consider the disposal of USD in addition to the purchase of the stock, and the purchase of USD in addition to disposal of stock for Tax calculation and matching purposes (section 104, same-day, BnB, etc).

Yet another thing is that IB transacts in symbols like GBP.USD and EUR.USD for Forex transactions. I assume it's appropriate to consider these as the instruments for tax calculation when Forex is held on margin, and if not on margin, I have to take the buying and disposals as that of actual currency (i.e buying GBP.USD should be treated as selling dollars to get GBP as proceeds) when doing tax calc and matching?

Would/should the HMRC care about this level of detail about matching of forex trades (explicit and implicit) if the primary activity done on the accounts is stocks and options trading, and not Forex trading?
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Sadly this is the sort of question that only HMRC or a very specialised tax accountant could answer.

GAT
(A UK based futures trader)

Maverick2608 · Oct 27, 2022

luisHK said:
I pay my taxes in a Euro country and have EUR as base country and those forex realized PnL in operations that didn´t involve EUR gave me quite some headache.
Below is the reply I got from IB on the topic, which you might find useful, u can probably change EUR for GBP in your case. Note as well IB does show the PnL in its statements, but other brokers I have where no euros are used don´t, which might end up as an issue with local tax authorities.
Frustrating as well that in a year like 2022 while my portfolio is way down I end up with significant realized gains because of forex (will realize some losses to end up with a 0 PnL but it´s still a hassle).

"Kindly note, Tbill and US-T are denominated in USD and your current base currency is EUR.
Kindly note, if you decide to trade securities such as Tbill and US-T denomated in USD, it will create a Forex gain when trading the products and/or holding them until they expire.
As your account is under IB-IE, based on the OECD AEOI requirement if you are trading Tbill and US-T which should be classified as being a security.
Kindly refer to the KB article below for additional information on what may be reported for the 2022 tax year:

https://ibkb-internal.prod.ibkr-int.co m/node/2784

The gain/loss reported on the Common Reporting Standard Report is capital gain/loss. It shows the gain/loss from the sale of the securities, dividends, and other types of income in which FX may not be included if additional information is received on current laws of OECD. The income reported on the FX income worksheet is ordinary income and it shows income/loss from disposition of a foreign currency. Both the amounts on the Common Reporting Standard Report and the FX worksheet should be reported on the tax return. Please note IBKR reported the amount shown on the Common Reporting Standard Report to the OECD / AEOI to Spain whereas the FX Income worksheet is provided as a courtesy to assist clients figure out their ordinary income/loss from foreign currency transactions with their qualified tax advisor. Income on the FX income worksheet may not be reported to the OECD / AEOI.
Please refer to the below link for more information.

https://www.interactivebrokers.com/en/index.php?f=1554&p=fxpl
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At least you can use your loss on equities to offset tax on you FX gain. I can't.

Maverick2608 · Oct 27, 2022

globalarbtrader said:
You can't add interest charges unless you are paying your tax as income tax not CGT, which is very unlikely.

No. It's only actual buys and sells that crystallise your CGT. Moving holdings between accounts has no effect.

You use the FX rate on the day of a buy or sell to calculate the acquisition cost and therefore profit.

Sadly this is the sort of question that only HMRC or a very specialised tax accountant could answer.

GAT
(A UK based futures trader)
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When you translate the profit/loss of future contracts to another currency, do you (1) use the FX rate on the day you realise against the net profit/loss? Or do you like stocks (2) multiply the FX rate on the contract value the day you open the position and multiply the FX rate on the contract value the day you realise your position to calculate profit/loss in another currency?

globalarbtrader · Oct 27, 2022

Maverick2608 said:
When you translate the profit/loss of future contracts to another currency, do you (1) use the FX rate on the day you realise against the net profit/loss? Or do you like stocks (2) multiply the FX rate on the contract value the day you open the position and multiply the FX rate on the contract value the day you realise your position to calculate profit/loss in another currency?
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Both. Futures are a bit weird, because the opening 'value' is zero; but you just have to translate the cost of commissions.

So for futures: on day 0 translate commission into GBP equivalent, that's your acquisition cost. On day T when selling translate profits less any closing commission into GBP equivalent, that's what you've realised. Profit for CGT purposes is the difference (with usual mucking about of matching rules).

For equities: on day 0 translate commission plus cost of purchase into GBP equivalent, that's your acquisition cost. On day T when selling, translate revenue from sales less any closing commission into GBP equivalent, that's what you've realised. Profit for CGT purposes is the difference.

GAT

Maverick2608 · Oct 27, 2022

globalarbtrader said:
Both. Futures are a bit weird, because the opening 'value' is zero; but you just have to translate the cost of commissions.

So for futures: on day 0 translate commission into GBP equivalent, that's your acquisition cost. On day T when selling translate profits less any closing commission into GBP equivalent, that's what you've realised. Profit for CGT purposes is the difference (with usual mucking about of matching rules).

For equities: on day 0 translate commission plus cost of purchase into GBP equivalent, that's your acquisition cost. On day T when selling, translate revenue from sales less any closing commission into GBP equivalent, that's what you've realised. Profit for CGT purposes is the difference.

GAT
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Great. I do it exactly like that. I hope the tax authorities understand that is the correct way to do it.

Alexpung · Oct 14, 2023

I have made a tax reporting tool for IB and Uk cgt and dividend tax.
Perhaps you will find it useful.
https://github.com/alexpung/UK-Investment-tax-calculator