Pounds into dollars: which exchange rates the IRS accepts, and when each one applies

Figures relate to tax year 2025 (US)

Every figure on a US return has to be in dollars. For an American paid in pounds, that means choosing exchange rates for salary, interest, tax paid, account balances and anything sold. The IRS does not want one rate for all of it, and using one is the most common error we correct.

The rules are simpler than they look once each item has its own home. So this guide covers which rate fits which figure, what the IRS publishes, what it accepts, and how to rebuild old years for a streamlined filing.

Key takeaways

• Regular income such as salary can use the IRS yearly average rate.
• One-off events such as a sale use the rate on the date of that event.
• FBARs and Form 8938 use the Treasury rate for the last day of the year.
• Foreign tax paid converts on its own basis, depending on your accounting method.
• The IRS accepts any posted rate used consistently for most income items.
• Old years for a streamlined filing need the same rules, applied year by year.
• Record the source of every rate, because consistency matters more than precision.

What is a spot rate, and what is an average rate?

A spot rate is the exchange rate on one particular day. An average rate blends many days into a single figure for a period. So exchange rates for one-off events come from a single day, while regular income can use a period average.

Neither is more correct in the abstract. The right choice depends on what the figure represents, which is why a return usually needs both.

What exchange rates does the IRS publish?

It publishes a yearly average rate for major currencies, including sterling. That rate suits income received evenly across the year, such as salary or rent. According to IRS guidance on foreign currency, you can also use any posted rate, provided you apply it consistently.

The Treasury separately publishes reporting rates, including a rate for the last day of each year. Those year-end figures matter for account reporting rather than for income.

Which rate for which figure?

The answer depends on the nature of the item. Income that arrives steadily can use an average. Events that happen once use the rate for that date. Balances reported at year end use the year-end Treasury rate.

Salary and other regular income

Monthly pay is the classic case for an average. Converting each payslip separately is also acceptable, but the yearly average gives nearly the same answer with far less work. Choose one method and keep it.

Bonuses deserve separate treatment. A large March bonus converted at the yearly average can land far from its true dollar value if sterling moved sharply that month. Our guide to reading a P60 for a US return covers building the wage figure itself.

Sales of shares, property and crypto

Here the spot rate on each date matters. Convert the purchase price at the rate on the purchase date and the sale price at the rate on the sale date. The gain in dollars then includes any movement in the pound between the two.

That produces results people find strange. A British flat sold for exactly what it cost in pounds can show a dollar gain or a dollar loss, purely from currency movement.

Crypto follows the same rule, trade by trade. Our guide to crypto on a streamlined filing shows how quickly the conversions multiply.

Why do FBARs use a different rate?

Because the instructions say so. The FBAR asks for each account's maximum value during the year, converted at the Treasury reporting rate for the last day of the year. That applies even if the maximum occurred in March, when the rate was quite different.

Form 8938 uses a year-end rate too. Using the IRS yearly average for these forms is a small error, but an avoidable one, and it can move a balance across a threshold.

Converting UK tax for the foreign tax credit

Tax paid to HMRC converts on its own basis. If you claim credits on the cash method, each payment converts at the rate on the day you paid it. If you use the accrual method, the tax generally converts at the average rate for the year it relates to, subject to timing conditions.

Most people in Britain use accrual, because PAYE and Self Assessment payments rarely match a single calendar year. The election to use accrual is made once and then applies going forward.

Can you use HMRC exchange rates?

HMRC publishes monthly rates, mainly for customs and VAT. For income on a US return, the IRS accepts a reasonable posted rate used consistently, so a documented HMRC monthly rate can work. For the FBAR and Form 8938, stick to the Treasury year-end rate the instructions require.

In our practice we use the IRS yearly average for regular income and Treasury rates for account reporting. Mixing sources within a single item is where problems start.

Where do you find historical exchange rates?

From the same official sources, which keep past years online. The IRS lists yearly averages going back many years, and the Treasury publishes quarterly reporting rates, including each year end. For daily spot rates, a central bank or a reputable data provider works, provided you record the source.

Save a copy of each page you rely on. Websites change, and a dated copy answers the question later.

Do joint and business accounts follow the same rules?

Yes. Exchange rates apply to the figure, not to who owns it. So a joint account uses the same year-end rate on each holder's FBAR. Also, business income follows the same logic as personal income: steady flows can use an average, while large one-off receipts use the date.

Businesses that keep books in pounds have one more option. They may be able to account in sterling and convert the result, which is often simpler. But that choice has technical conditions, so check them first.

A worked example

The figures below are illustrative. Take an example: an American in Leeds earns a £72,000 salary in 2025, receives a £10,000 bonus in March, sells shares bought in 2019, and holds a savings account peaking at £30,000.

Salary converts at the IRS yearly average. The bonus converts at the March payment-date rate. The share sale uses 2019 and 2025 spot rates for purchase and sale.

The savings account's £30,000 peak converts at the Treasury rate for 31 December 2025 on the FBAR. Four items, four rates, each one defensible.

Each rate then goes into the workpapers with its source. That record is what makes the return defensible if a question arrives years later.

What about a sterling mortgage?

It can create a currency gain of its own. When you repay a mortgage in pounds, America measures the loan in dollars at the dates you borrowed and repaid. If the pound fell in between, the repayment costs fewer dollars, and that difference can be taxable income.

This surprises almost everyone who sells a British home. So check it before completing the sale, because the timing of repayment can change the result.

Also note that the rule runs one way only. A currency loss on a personal mortgage generally brings no deduction, which makes the planning more important, not less.

Rebuilding exchange rates for a streamlined filing

Old years follow exactly the same rules. The difference is that you need historical rates, and the records behind them. The IRS yearly averages and the Treasury reporting rates for past years remain published, which makes reconstruction straightforward.

1. List every figure by year: salary, bonuses, interest, sales, tax paid and account balances.
2. Tag each figure as regular income, a one-off event, a year-end balance or tax paid.
3. Apply the yearly average to regular income for each year separately.
4. Apply spot rates to one-off events, using the actual transaction dates.
5. Apply the Treasury year-end rate to FBAR and Form 8938 balances.
6. Convert foreign tax according to your credit method, and keep the method consistent.
7. Record the source of every rate in the workpapers.

What if you used the wrong rate in the past?

Small differences rarely justify amending a year on their own. But a wrong rate that moved an FBAR balance across the threshold, or misstated a large gain, deserves correction. Where other items also need fixing, fold the rate correction into the same package.

Consistency matters more than precision here. An examiner will accept a reasonable method applied throughout far more readily than a patchwork of sources.

So if you do correct a year, correct the method as well. Then carry that method forward, because the next return should match the corrected one.

How much difference can the choice make?

More than people think. In a year when the pound moves 10%, converting a £100,000 gain at the wrong rate can shift the dollar figure by $12,000 or more. That changes the tax. So the choice of exchange rates is not a rounding question.

Over several years of a streamlined filing, those differences compound. Consistent methods keep them honest, and documented sources keep them defensible.

Mistakes and penalties we see with exchange rates

• Converting everything at one rate chosen when the return was prepared.
• Using the yearly average for a large one-off bonus or sale.
• Converting FBAR balances at the average rather than the Treasury year-end rate.
• Converting a sale using today's rate for both the purchase and the sale.
• Switching rate sources from year to year without a reason.
• Keeping no record of which rate was used, or where it came from.

The penalties are accuracy-related rather than dramatic. But a wrong rate can understate a gain or push an account under a threshold, and interest runs from the original due date once corrected.

How US UK Tax Accountants helps

We apply the right rate to each item and record the source in the workpapers, so the conversions stand up later. For streamlined filings we rebuild every year on the same basis. If your returns mix rates or you are catching up on missed years, get in touch and we will review them alongside our streamlined filing work.

Last reviewed 22 September 2026. This article is general information and not personal tax advice. Rate sources and instructions can change, so check the current guidance for the year you are filing.