Jump to content
  • 2

Tax implications for different trades


moneyball

Question

Hi, Im new into trading so I'm wondering tax implications for different types of trades. I had a look at the guides/help docs but I wanted to double-check with the community and confirm below:

-Spread bet: On IG it says this is tax-free. This is great but anyone know why spread bets are listed as tax-free? is it due to risk of losing a higher amount?

-CFD: This is taxed. 

-Share dealing: This is also taxed unless protected by an ISA?

It will be great if someone can share knowledge/experience and confirm if above rings true.

Thanks!

Link to comment

3 answers to this question

Recommended Posts

  • 0
On 26/01/2021 at 16:36, moneyball said:

Hi, Im new into trading so I'm wondering tax implications for different types of trades. I had a look at the guides/help docs but I wanted to double-check with the community and confirm below:

-Spread bet: On IG it says this is tax-free. This is great but anyone know why spread bets are listed as tax-free? is it due to risk of losing a higher amount?

-CFD: This is taxed. 

-Share dealing: This is also taxed unless protected by an ISA?

It will be great if someone can share knowledge/experience and confirm if above rings true.

Thanks!

Hi Moneyball,

You'll struggle to get a straight answer from anyone on this because it's a grey area. I've traded the indices with IG and other providers for around 10 years and this is what I think the position is.

Share dealing is subject to capital gains tax and stamp duty but there's no leverage involved. As you say, if it's within an ISA it's tax free. This much is pretty clear.

In terms of functionality, I can see literally no difference between spread bets and CFDs when using a standard platform. But then again I only trade the indices... the spread is the same on both as are the prices on the platform. I'm not sure if this holds true if you're betting/trading individual stocks, and some traders use the DMA function which I think is specific to CFDs. But if you're like me and doing quite basic things with it then I don't think there's a difference (i.e. the risk is the same).

The tax is a more difficult question to answer. CFDs aren't subject to stamp duty because you don't hold the underlying asset, but they are subject to capital gains tax. At the face of it, spread betting is completely tax free. The obvious question then is why would anyone choose to use a CFD over a spread bet... and that's partly because they can be used to hedge, so if you were to lose on the CFD which was hedging a share holding, the losses on the CFD would be tax deductible.

But personally spread betting obviously appeals more if what you're doing is outright speculation and you're not hedging anything. The grey area is that there's a possibility you could be subject to income tax if its deemed that you're 'carrying out a trade'. Have a look at the HMRC website as this quotes plenty of case law around the proceeds of gambling, which spread betting comes under.

The issue is this all seems rather subjective on their part... the only way you could know for sure is by contacting them and asking for a written ruling. For someone to be subjected to income tax, however, they'd have to be classified as a professional gambler which means they lose their tax free exemption on gambling wins. However, I believe they're reluctant to do this because it would mean that losses could also be offset against income taxes from other sources, and given most traders lose money over time (or at least they aren't consistently profitable year in year out) this would cost them more money than by leaving it as it is whereby IG pay a betting tax on gross profits just like a regular bookmaker.

Sometimes you can get on a good run with it and it feels like easy money, and then you think 'surely this has to be taxable' and other times you're on a really bad run and its a reminder that it is a form of gambling because you're betting on short term fluctuations. I've never been contacted by HMRC about my spread betting.. my largest win in a single tax year (2015/16) was in the hundreds of thousands, and I was in full time employment paying tax by PAYE at the time, and I heard nothing. So its doubtful they will contact you.. I would imagine they could get a copy of the trade history from the brokers and go after anyone who made good money, but from discussing this with account managers I don't think they have done as its regarded generally to be tax free.

I left my previous job a couple of years ago and have modest spread betting losses over that time. I'm not sure if it would be subject to income tax if I'd made profits given I no longer have a PAYE taxed income, but believe they would need to build a case against you re carrying out a trade given its classed as tax free gambling and as such you have no obligation to report the winnings on a tax return.

It's probably worth keeping accurate records of your trades (e.g. statements and bank statements) just in case an audit trail was required.

I don't think you'll be able to find out anything more unless you wanted to contact them directly about it, which personally I wouldn't. The situation can always change however.. and you can't rule this out given the Chancellor seems likely to mess around with capital gains taxes. But I've not seen anything to suggest the taxation of spread betting will change... its probably only going to change if they deem that either too many people are winning or if lots use it to avoid capital gains taxes when the higher rates kick in. So realistically higher CGT looks like a 2022/23 tax year thing given the pandemic is ongoing, and then it would be based on behaviour after that. So I'd say it will probably stay the same for at least another two years. Just my opinion.. hope this helps.

 

  • Great! 1
Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      23,646
    • Total Posts
      97,088
    • Total Members
      44,201
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    DrIngNucelar
    Joined 07/12/23 08:57
  • Posts

    • Dear @espiral, Thank you for your response. Please note that we cannot offer this stock on leveraged accounts and it is only available for non-leveraged accounts. This is because of the higher broker margin which would need to be transferred to the clients. Thanks, KoketsoIG
    • Hi, Now ORA is not available with leverage on the platform.
    • Hi Philo, Keep up the great analysis Been watching and waiting for weeks This next chart is the US 10 yr Yld composite cycle Index - I stopped updating it in 2017, as I'm not interested in Int rates, I might at some point update it to show the next topping of the big cycle but that's decades away - Anyone living in the land of "low rates are here to stay" need to wake up, as over the next few decades rates are going to rise and rise and rise (definitely into double digits) If you are macro based and use Int rates in your analysis, then try to picture the forward projected large BLUE and PINK cycles To give you some scales to the chart - the FAR LEFT is the early 1960's, the PEAK in 1981/2 and the start of the blue flat lining line is 2017 Anyway, over the next few decades you will see a steady gradual rise as the Yld is forced upwards by those cycles THT
×
×
  • Create New...
us