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January 16, 2017

Knight & Knight v HMRC - CGT Calculation with Foreign Currency

The case before the First-Tier Tribunal (FTT) highlights the importance of correctly accounting for capital disposals in foreign currency. Taxpayers should ensure they account for non-sterling items correctly when calculating capital gains tax (CGT).


  • George Knight and Ingeborg Knight (the taxpayers) purchased a Swiss property in August 1998 and disposed of the property in January 2010. A number of expenses were also incurred in relation the property.
  • All the aforementioned transactions were charged/paid for using Swiss Francs.
  • The taxpayers disclosed these disposals to HMRC under the Liechtenstein Disclosure Facility and HMRC issued discovery assessments for the 2009/10 tax year.
  • The taxpayers and HMRC used alternative methods for calculating the CGT liability.

The Case

The FTT was asked to rule on which method of calculating the CGT liability was correct.

The taxpayers asserted that the correct method of calculation was to: (1) calculate the gain in Swiss Francs, then (2) multiply the gain by the exchange rate applicable at disposal to produce the chargeable gain in sterling (“Method A”).

HMRC contended that the correct method was to: (1) convert each item into sterling at the appropriate exchange rate in force when the item was earned/incurred, then (2) calculate the gain in sterling (“Method B”).

The Decision

The FTT cited previous cases in both the Court of Appeal and the High Court which had previously ruled on this point of law. Both higher courts agreed that Method B was the correct method for calculating capital gains.

The FTT was bound by judicial precedent to honour these rulings however Judge Richards took deliberate care to explain his reasoning in detail. He explained this was in deference to the great deal of time and effort the taxpayers has spent trying to establish that Method A was correct.

The full decision can be found here.

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