541A Treatment of debts on a change in currency

Summary

This section sets out the tax treatment of a bank account denominated in a foreign currency which on 1 January, 1999 became a bank account denominated in euro. (A bank account is essentially a debt due to the holder by the bank.) The exchange gains and losses which would have arisen on the disposal of that account on 31 December, 1998 are, for capital gains tax purposes, deemed to arise on that day. However, with some exceptions, any gains so arising are not liable to capital gains tax until the account is disposed of, i.e. the funds are withdrawn from the account. Provision is made for the tax treatment of partial withdrawals of funds from the account.

Details

(1) Where a person held a bank account in the currency of a foreign State, the disposal of which would not be exempt from capital gains tax by virtue of section 541(6), and that account becomes denominated in euro because of the introduction of the euro on 1 January, 1999 in both the foreign State and Ireland, then for capital gains tax purposes the account (a debt owed by the bank) is deemed to be disposed of, and reacquired, at market value on 31 December, 1998.

(2) & (3) Any chargeable gain which accrues by virtue of this deemed disposal cannot be assessed and charged on the person until funds are withdrawn from the account or the debt is otherwise wholly or partly satisfied.

(4)(b) Special provision is made for life assurance companies and undertakings for collective investment, which entities have their own regime for the treatment of both realised and unrealised gains and losses which involves a seven year spread. These provisions ensure that that regime also applies to gains and losses arising from the conversion of foreign currency bank debts to euro on 1 January, 1999. For these entities there is no deemed disposal and reacquisition under subsection (1) of such a debt where it is an asset of an assurance company’s life business fund, or as the case may be, a debt which is an asset of an undertaking. If the accounting date of an assurance company or a corporate undertaking is 31 December, then such a debt will be deemed to be disposed of and reacquired in any event on 31 December, 1998 under sections 719(2) and 738(4) respectively. If the accounting date is not 31 December, then a deemed disposal and reacquisition of the debt is imposed on 31 December, 1998 as if it where the accounting date in accordance with those sections. Gains and losses thereby accruing are aggregated with gains and losses accruing and deemed to accrue at the end of the actual accounting period in accordance with those sections.

(4)(c) In the case of a collective investment undertaking which is not a company, subsection (1) applies so that there is a deemed disposal and reacquisition of the debt on 31 December, 1998. However the deemed gains or losses thereby accruing are treated as accruing by virtue of section 734(a).

(4)(d) Since the seven year spread of gains and losses does not apply to assets of a special investment fund nor to assets which are subject to any trust created pursuant to a special investment scheme their foreign currency bank accounts are deemed to be disposed of, and reacquired, on 31 December, 1998 under subsection (1) and no deferral, under subsection (2), of the tax charge is allowed.

Relevant Date: Finance Act 2019