CFD and Capital Gains calculations

[garfieldtheunclean]

Hi

Wondering how people who are doing CFD trading manage to do their CFG calculations for HMRC?

It's easy to download a transactions summary from IG, and that gives all details of a position including open, close, size, dividends, interest, commission and overall profit/loss for each trade.  However, I'm sceptical whether this is sufficient for HMRC.  For example: -

• It doesn't take into account same day and 30 day rules
• It doesn't show the "margin" - so it's not possible to calculate the actual "allowable cost" etc which is the sort of figures that HMRC deal in

As per the attached - the simple thing to do would be just to attach the report and add up the summaries, but because of the lack of margin% in the report you can't work out "cost" and "proceeds", and it doesn't take into account section 104 pools, same day and 30 day rules.

So am interested in what CFD traders have done to make this work?  For example: -

• Do multiple buys/sells of the same underlying instrument actually count as "the same" - or as they all have unique "references" can you actually treat them individually?
• For "allowable cost" can you just use what the share "would have cost" ignoring margin?  Margin can change over time - e.g. it might be 15% when you open it, but the margin may change to 25% whilst the position is still open, so "cost" isn't really a notion that makes sense.

Any advice appreciated.

Thanks

[igreen]

I had the same issue couple of years ago and rang IG customer services. They were kind enough to email me a guidance notes. It was a little out of date as the figures shown as example were only showing up to 2009/10. But it was a very useful notes.

 

I tried to load their guidance notes but it would not allow me to upload here.

[igreen]

small correction. figures show on the notes were tax exempt amout leading up to 2009/10, not an example.

[Caseynotes]

56 minutes ago, igreen said:

I had the same issue couple of years ago and rang IG customer services. They were kind enough to email me a guidance notes. It was a little out of date as the figures shown as example were only showing up to 2009/10. But it was a very useful notes.

 

I tried to load their guidance notes but it would not allow me to upload here.

Hi, what format are the 'notes' in? Can they be converted to PDF?

 

7 hours ago, garfieldtheunclean said:

For "allowable cost" can you just use what the share "would have cost" ignoring margin?  Margin can change over time - e.g. it might be 15% when you open it, but the margin may change to 25% whilst the position is still open, so "cost" isn't really a notion that makes sense.

Hi, margin isn't actually a 'cost', it is just the amount you need to hold in your account to cover any potential loses.

[igreen]

I think it is in PDF format. When I received the guidance I uploaded it into my iBooks for future reference, but unable to load it here.

[Caseynotes]

15 minutes ago, igreen said:

I think it is in PDF format. When I received the guidance I uploaded it into my iBooks for future reference, but unable to load it here.

Ok, sorry, thought you could upload PDFs

 you can convert to jpg from this site (free no sign up) 

 

PDF to JPG online converter - Convert PDF to JPG for FREE (pdf2jpg.net)

 

 

[igreen]

I tried to copy and past the IG Guidance below as it was. format may be a little off kilter...  

 

Please note I just followed what the guidance said.  Also uploaded the statement from IG into HMRC website.  HMRC has not come back to me to ask any questions....

--------------------------------

Guidance for UK CFD clients

This guidance is intended to provide a general indication about the possible tax treatment of CFDs in the UK. It reflects our current understanding but does not constitute advice from us in any way whatsoever and we

shall have no liability to you in respect of any loss or penalty arising from your reliance upon this guidance. You should not rely on this guidance when making decisions about dealing in CFDs.

You are strongly advised to seek independent tax advice from your own tax advisor that takes into account your personal circumstances. It is important to note that this guidance has not been endorsed by the UK tax authorities and that tax laws and their interpretation are always subject to change.

This guidance applies to UK resident individuals only. If you are a non UK resident, or unsure of your residency status for tax purposes, you should consult an independent tax advisor.

Our summary reports

Our company can provide you with two reports to help you complete your tax return (i) a Summary of Activity of your trading over the previous tax year (or any other period for which you request information) and (ii) the Detailed Activity underlying the Summary.

It is entirely your responsibility to check the amounts noted in these summaries are correct, if you have any questions at all contact IG Markets Ltd directly on 0800 195 8009.

(i) Summary of Activity

This will be in the following format

Category Amount
1) Sum of trading profit and loss (including commission) 2) Sum of interest received X
3) Sum of cash adjustments for dividends received
4) Sum of interest paid X
5) Sum of cash adjustments for dividends paid
6) Sum of interest received on cash deposit
7) Sum of interest paid on cash deposit
😎 Sum of tax deducted on interest received on cash deposit 9) Other entries (including cash) X

If you have traded in products where profits or losses arise in currencies other than sterling there will be a separate Amount column for each currency you have traded. This is because you will need to use the Inland Revenue’s published Exchange rates to convert these amounts back to sterling.

The HMRC website publishes the applicable rates, see http://www.hmrc.gov.uk/exrate.

(ii) Detailed Activity

This report shows the detail than underlies the Summary of Activity. For each of the categories 1 to 9 above, we have broken out each of the entries making up the Summary totals. For example, you would expect to see all the amounts paid to you as CFD funding interest on short positions in Category 2.

Of course any entries appearing on your Ledger Summary should also have appeared on the Statements of account activity you have previously received from us.

We recommend you go through all type 9 entries in case any income in this category should be moved into any of categories 1 to 8.
Help completing the HMRC Tax Return

There are nine categories of income included in the Summary of Activity, outlined below is our current understanding of how a UK resident individual would include these on his or her Tax return. This is based on the assumption that your CFD activity is subject to Capital Gains Tax treatment (which is the normal treatment). It is possible in some circumstances for your activity to be viewed as income from a trade, in which case the following does not apply and you should consult your accountant or other tax advisor.

In summary, we believe Capital Gains Tax is applied to the aggregate of the difference between opening and closing price along with the amounts of commission, interest and dividend adjustments relating to all closed positions during the tax year. For clients who have taken long positions this treatment will normally be beneficial as it will enable a deduction for funding interest.

Please note that you may not need to tell HMRC about any capital gains if your total gains (not just CFD gains) are less than the annual exemption of £10,100 and total proceeds after costs are less than £40,400 for 2009/10. This last figure is always four times the annual exemption and changes from year to year. The annual exemption for the last five years has been as follows;

 

Capital Gains Tax: Individuals

 

Annual exempt amount   2005-06 (£).   2006-07 (£) 2007-08(£) 2008-09 (£) 2009-10 (£)

Individuals.                            8 500.              8 800.           9 200.           9 600.           10 100

If you have any doubt on the completion of your return we recommend that you seek professional advice. You may wish to direct your advisor to the HMRC Capital Gains Tax Manual section 56100 http://www.hmrc.gov.uk/manuals/cgmanual/CG56100.htm that sets out the HMRC’s analysis of the treatment of CFDs.

 

1) Sum of trading profit and loss (including commission) X
This needs to be included in the Capital Gains Section of the return as long as your Total chargeable gains were more than the relevant value stated within the above table.

Similarly you should fill in these pages to claim an allowable loss.
It is very important that you speak to your Tax advisor before completing this Section.

2) Sum of interest received X
Any interest received on your account as a result of you running a short CFD position should increase your capital gain.

3) Sum of cash adjustments for dividends received X
Any cash adjustments for dividends received on your account as a result of you running long CFD positions should increase your capital gain.

4) Sum of interest paid X
Any interest paid by you as a result of you running a long CFD position should reduce your capital gain. Interest paid is an allowable deduction.

5) Sum of cash adjustments for dividends paid X
If your account has been debited as a result of you running a short CFD position any cash adjustments for dividends paid can be treated as allowable capital deductions.

6) Sum of interest received on cash deposit X
This would be included at ‘Other Income from UK Savings and Investments (except dividends)_Gross Amount before Tax’.

7) Sum of interest paid on cash deposit X
Interest paid on cash deficits will not be included on the tax return. Similarly no tax relief is available for interest paid on bank overdrafts.

😎 Sum of tax deducted on interest received on cash deposit X
This would be included at ‘Other Income from UK Savings and Investments (except dividends)_Tax Taken off’.

9) Other entries (including cash) X
Cash entries will not be included on the Tax Return, but you should review these items to ensure that none of them have been misclassified and should be included under one of the categories above.

 

 

 

 

Edited November 5, 2021 by igreen

[garfieldtheunclean]

Brilliant, thanks @igreen.  So I think the report naming has changed slightly since that guidance, but it basically reflects the "transaction summary" we can download today - and their guidance does follow the simple HMRC guidance example here https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg56101.

There's no reference in the guidance about pooling/same day/30 day as applied to traditional shares, etc.  It appears therefore that each "contract" is a separate entity, and it doesn't matter that they follow the underlying share or "instrument" - it's just a gain or loss.  If they've not questioned your submission - did you have overlaps which, if they were normal shares would have been subject to these rules?  If so and they didn't question, that sounds promising.  Further, this link suggests that a CFD of "company X" is not the same as a share in "company X" Bed and Breakfast Deal Definition (investopedia.com).

@Caseynotes on your point of margin not being cost, that makes sense and is the conclusion I was coming to after thinking about this quite a lot last night.  The way I see it when summarising everything: -

"Allowable Costs" will be generally commission and funding interest ( and things like dividends for short positions)

"Disposal proceeds" will be the "difference" plus any dividends (and things like funding interest for short positions)

The difference between those gives the overall gain or loss.

The only "odd" thing I can see here is that the "proceeds" from a loss making contract will be negative, and I don't know whether that would work on the forms - i.e. effectively selling something for a negative amount of money.

I have asked a separate question to HMRC on the pooling and on the "allowable costs"/"disposal proceeds" and will update here if I get anything useful back.

[igreen]

I am not hot on 'pooling/same day/30 day' rules as all my traditional share dealings are held in 'Stocks & Shares ISA'. Anyway, these rules don't apply to CFD trading(I believe ) as only the closed contacts during the fiscal period need to be reported on this year's  Tax return. Hope this makes sense.

About your point on loss making contracts, basically you populate the 'Net' of Profit or Loss. If HMRC needs details then IG statement uploaded will have them.

[garfieldtheunclean]

So confirmation from HMRC as follows: -

Quote

Using the guidance in CG56101 the second method for showing the allowable costs/disposal costs is more in line with the examples given.

This was confirming that as @Caseynotes says, margin isn't counted as a cost and the "disposal proceeds" is just the "contract difference" (plus dividends etc) and that my previous post about what to include in "Allowable Costs" and "Disposal proceeds" is correct.

Quote

However, the first method would not be wrong.

This confirms however that, even is using the underlying cost (even if it wasn't actually spent) is still fine.

Basically I take from this that they don't really mind how the numbers are derived - provided the final figure is correct.

Quote

There is no pooling with CFDs.

And finally, this confirms that pooling is not required and so the aggregate reports for closed positions during the tax year is all that's required.

Thanks all.

[S1]

Hi I need some help please - I have HMRC querying my CFD statements and have asked the value of disposal proceeds. For my CFD account for this tax year in question it is over 500 transactions, the statements IG provide does not have a a value for the trade.