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Ask Your Own Question, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5115
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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How should interest premium and conversion losses associated

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How should interest premium and conversion losses associated with Dual Currency Investments be treated
Hello and welcome to the site. Thank you for your question.

Please expand on your question by giving some background....
Also, is it relating to accounting or tax?

Many thanks
Customer: replied 3 years ago.
This relates to tax. I have a USD and GBP account. For the 13/14 tax year I did a DCI with USD as the base currency. This did not convert so I gained from the interest premium and remained in USD. For the 14/15 tax year I have done several DCIs most (despite the interest premium). So my question is really a) whether the interest gain in 13/14 needs to be treated as income (the same as a standard deposit account) or can it be treated as a capital gain due to the risk associated with the investment, and b) by analogy, can the losses associated with the forced conversion from USD to GBP at worse than market rates, for 14/15, be offset against other capital gains, and likewise, is the interest received on these investments, despite the overall loss taxable and, if so, as income or CGT? Many thanks, Jerome

Jerome, thank you for your reply and for some background.

I see interest gain as a capital gain and falls within CGT regime whereas the interest received falls within IT regime.

The same would apply to losses and these can be offset against the other gains in teh tax year.

The investment interest received is chargeable to income tax.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.
Many thanks. I'm sorry to be stupid but I don't understand the difference between "Interest Gain" and "Interest Received". Also, in making these investments an interesting mechanism is employed wherein the interest is essentially split into 2 components: a "Premium" or "Up Front" interest amount, which is immediately added to the initial investment, and an "Accrual" interest rate, which adds to the upfront to create an overall effective interest rate.
Thus for example, I invest $500k to which a premium of $2867.43 is immediately added. For a 1 month investment interest is then accrued at 0.1175% creating an overall enhanced interest rate of 7%per annum and giving a total return for a 1 month investment of $2916.67. Am I right in therefore concluding that the interest component ($2***-**-****.43=$49.24) should be taxable as income and the premium ($2867.43), which is essentially the cost of the banks Put option, should be treated as CGT?
Thanks again for your help
Jerome, thank you for your reply.

You are correct in your assessment of what is income and what is capital..

I hope this is helpful and answers your question. and other Tax Specialists are ready to help you
I thank you for accepting my answer.
Your reward of a bonus is greatly appreciated.

Best wishes.