UK nationals trying to currently sell their overseas holiday homes could face an unexpected UK capital gains tax liability on account of the recent movement in sterling against the euro. The warning comes from PKF's director of personal tax Matt Coward, who said that the movement in sterling against the euro in the last couple of months means a return to the sort of dramatic currency risks that many holiday home owners will never have experienced. 'For UK tax purposes, gains on overseas assets are calculated using spot exchange rates on the dates the assets are bought and sold. This means that overseas owners could face an unexpected UK capital gains tax (CGT) liability if they now sell an overseas property that they have owned for a couple of years. 'A straightforward example illustrates how even a euro-denominated loss of €250,000 - due to a fall in property prices - can give rise to a UK capital gains tax liability. 'In our case study, a UK national buying a Spanish property in January 2007 for €1.25m (£854,818) sells in January 2009 for €1m (£966,744). Although there is a loss in euros, there is a profit of £111,926 on which he will need to pay UK CGT of at least £18,419 on 31 January 2010.' Coward said that the position could be particularly difficult if owners now reinvest all their equity in a new overseas property as they may then have difficulty finding the cash to pay the UK tax liability when it becomes payable in January 2010. Even those who are aware they have a UK tax problem will often realise a smaller amount of post-tax equity from their properties than they may have expected. 'Worse still, if owners simply sell an overseas holiday home and leave their equity from it in a foreign currency bank account, they could face a double hit if the value of sterling recovers before the UK tax is payable on any gain. If they cannot pay the UK tax from UK funds, they would have to convert some of the original sale proceeds back to sterling at a disadvantageous rate. Of course, the value of sterling may yet fall further, which shows just how difficult these decisions can be,' he said. Coward says that unwitting failure by holiday home owners to report such gains will not be met with a sympathetic approach from Revenue & Customs: 'The Revenue already regards individuals with overseas assets as "high risk" in terms of paying the right amount of tax. 'While selling an overseas property may be the right thing to do in order to balance your books as the economy falters, it is very important to take account of both the overseas and UK tax implications of selling up.'