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Transferring savings to UK. Tax on currency exchanges?

Transferring savings to UK. Tax on currency exchanges?

Old Jan 16th 2016, 4:22 pm
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Question Transferring savings to UK. Tax on currency exchanges?

Hi,

Hoping the knowledgeable and helpful BE members may be able to shed some light on this issue.

As at today USD vs GBP = 1.42.

Transferring our savings from the US to our UK bank account at this rate would be quite a significant financial benefit to us. Even although we don't intend to relocate for sometime (not this year).

My question is: does this transfer of funds trigger a tax obligation in either the UK or the US?

Thank you in advance for help and advice received.
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Old Jan 16th 2016, 4:25 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Moving funds that have already been taxed doesn't ever trigger a tax liability in either country.
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Old Jan 16th 2016, 4:48 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Thanks Pulaski!

your answer is what I thought. However I am having trouble convincing my husband and here's why -

We may or may not relocate permanently back to the UK, so I think we could transfer some of our savings now at this favorable rate, and if we decide to remain permanently in the US, we could transfer back again to US.

He believes we will be subject to tax if we ever transfer the same money back to the US.

I cannot find much information on currency transaction gains on IRS website.

So hypothetically if we exchange 100k at 1.42 now, and decide to transfer it back when exchange rate is say 1.7 - we would not have to pay US tax on any gain?


I know we've already paid tax on our earnings and also on the minuscule interest, but if we invested those savings in the stock market, we'd have to pay capital gains tax when we sold them. So I guess that what's perplexing us.
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Old Jan 16th 2016, 5:18 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by Ms Moore View Post
So hypothetically if we exchange 100k at 1.42 now, and decide to transfer it back when exchange rate is say 1.7 - we would not have to pay US tax on any gain?
You would be liable to US tax on the profit you made from the exchange.
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Old Jan 16th 2016, 5:23 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by Pulaski View Post
Moving funds that have already been taxed doesn't ever trigger a tax liability in either country.
It can do. I use the IRS average exchange rate to calculate the value of my UK income for tax purposes in the US. If I subsequently move that money over at a higher rate of exchange the IRS expects me to declare the difference and pay taxes on it.
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Old Jan 16th 2016, 5:47 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

I agree with Lansbury that moving money back and forth can be a taxable event if the exchange rates are favorable and one makes a profit. Plenty of folks work the "forex" markets to make such profits.

I have been moving lots of money over with these favorable exchange rates and with no plans to move any of it back will pay no taxes in either country.
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Old Jan 16th 2016, 6:18 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by lansbury View Post
You would be liable to US tax on the profit you made from the exchange.
Moving money back and forth might cause a problem, but the chances of it being noticed is very low if you move it back after several years.

If you actually use the money for some purpose, say buy a home for your child while they're at uni, then sell the home and move the money back several years later, I doubt if most people would even think to calculate an FX gain, much less to declare it on their tax return. I also doubt the IRS is looking for such events.
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Old Jan 16th 2016, 6:21 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by Pulaski View Post
Moving money back and forth might cause a problem, but the chances of it being noticed is very low if you move it back after several years.

If you actually use the money for some purpose, say buy a home for your child while they're at uni, then sell the home and move the money back several years later, I doubt if most people would even think to calculate an FX gain, much less to declare it on their tax return. I also doubt the IRS is looking for such events.
I doubt most do pay tax on it, but it is taxable and might cause problems in the unlikely event of an audit.
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Old Jan 16th 2016, 6:26 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by lansbury View Post
I doubt most do pay tax on it, but it is taxable and might cause problems in the unlikely event of an audit.
"Might" indeed, but I doubt it unless it is part of a regular and substantial pattern of back and forth movements.
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Old Jan 16th 2016, 7:27 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by lansbury View Post
It can do. I use the IRS average exchange rate to calculate the value of my UK income for tax purposes in the US. If I subsequently move that money over at a higher rate of exchange the IRS expects me to declare the difference and pay taxes on it.
As I understand it, you report and pay US taxes on income earned in the UK (calculated using average exchange rate) - and if you transfer that UK income to the US at a more favorable rate, then you must pay US income tax again.

But I think our scenario is different, we are moving our savings to a UK account. We are not currently resident in the UK. What if we leave the money in our UK account? Obviously we would declare any interest we received to the IRS whilst the money is there. I can't think where I would declare the currency transaction gain on my 1040.

Any ideas?
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Old Jan 16th 2016, 8:01 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by Ms Moore View Post
As I understand it, you report and pay US taxes on income earned in the UK (calculated using average exchange rate) - and if you transfer that UK income to the US at a more favorable rate, then you must pay US income tax again. But I think our scenario is different, we are moving our savings to a UK account. We are not currently resident in the UK. What if we leave the money in our UK account? Obviously we would declare any interest we received to the IRS whilst the money is there. I can't think where I would declare the currency transaction gain on my 1040. Any ideas?
Apart from FBARs and 8938s you might have some income taxable under Section 988. See here for example: https://www.irs.gov/Individuals/Inte...Exchange-Rates
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Old Jan 16th 2016, 8:35 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

So let's say you transfer $100K at $1.30/£1.00 and ignoring transfer fees you would have £76,923 in your UK bank. Now, doing your taxes and filing FACTA and FBAR you use the IRS's exchange rate to value your UK funds, but the IRS rate happens to be $1.50/£1.00 and now your UK funds are worth $115,384 so, you have an income in the year of transfer of $15,384 and I'm fairly sure the IRS will be expecting you to pay taxes on that gain as it's part of your WORLDWIDE income irrespective of whether you move it back to the US or not.

This then also begs the question, if there is a drop in the value of your UK funds in the following year do you get to take that loss in to account when you file your US taxes???
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Old Jan 16th 2016, 8:40 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by Disenchanted View Post
So let's say you transfer $100K at $1.30/£1.00 and ignoring transfer fees you would have £76,923 in your UK bank. Now, doing your taxes and filing FACTA and FBAR you use the IRS's exchange rate to value your UK funds, but the IRS rate happens to be $1.50/£1.00 and now your UK funds are worth $115,384 so, you have an income in the year of transfer of $15,384 and I'm fairly sure the IRS will be expecting you to pay taxes on that gain as it's part of your WORLDWIDE income irrespective of whether you move it back to the US or not.

This then also begs the question, if there is a drop in the value of your UK funds in the following year do you get to take that loss in to account when you file your US taxes???
You only pay tax on the gain (or can offset against it, in the case of a loss) when you actually realise the gain, i.e. transfer into the other currency.

Last edited by Owen778; Jan 16th 2016 at 9:07 pm.
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Old Jan 16th 2016, 9:03 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by Ms Moore View Post
As I understand it, you report and pay US taxes on income earned in the UK (calculated using average exchange rate) - and if you transfer that UK income to the US at a more favorable rate, then you must pay US income tax again.

But I think our scenario is different, we are moving our savings to a UK account. We are not currently resident in the UK. What if we leave the money in our UK account? Obviously we would declare any interest we received to the IRS whilst the money is there. I can't think where I would declare the currency transaction gain on my 1040.

Any ideas?
I used TransferWise to send some money to the UK today and one of the questions I had to answer was "Where was the money coming from?" and the drop down option I chose was "Savings". Other options included "Wages" and "Investments", so I think you are correct on the point about being careful on the sources of the funds being transferred over.

As for declaring the interest on your US return you simply create a 1099-INT and enter the $ that you get when converting to GBP using the IRS conversion rate. I think I've heard that starting in 2017 UK Banks will start issuing 1099-INT's to US customers. (Part of the FATCA implementation)
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Old Jan 16th 2016, 9:17 pm
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Default Re: Transferring savings to UK. Tax on currency exchanges?

Originally Posted by Ms Moore View Post
As I understand it, you report and pay US taxes on income earned in the UK (calculated using average exchange rate) - and if you transfer that UK income to the US at a more favorable rate, then you must pay US income tax again.

But I think our scenario is different, we are moving our savings to a UK account. We are not currently resident in the UK. What if we leave the money in our UK account? Obviously we would declare any interest we received to the IRS whilst the money is there. I can't think where I would declare the currency transaction gain on my 1040.

Any ideas?
If you transfer it to the UK and leave it there as Owen778 says that is it, no tax due, other than on any interest earned as you say. You would only be liable for tax if you moved it back and gained on the exchange rate.
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