UK Tax on Forex, CFD Trading & Spread Betting

November 16, 2015

Once you have a funded trading account and are making trades you may be liable for tax on Forex trading profits and you may also be allowed to claim tax relief on any trading losses. The advice below is strictly for UK residents and is a brief guide only, please seek the advice of a tax professional before following any of the advice on this blog.

 

CFD Trading - Tax

 

Do you need to pay tax on CFD trading profits?

 

Profits from CFD trading need to declared to HMRC and any other tax governing bodies. CFD trading is not liable for stamp duty or income tax but CFD trading is liable for Capital Gains Tax. Capital Gains can have a higher tax free allowance and a lower tax rate than income tax, which is another advantage to trading for a living rather than paying income tax through employment or self employment.

 

How do I declare and pay Capital Gains Tax?

 

You will need to file an annual Capital Gains Tax return. This is usually best done online. Contact HMRC for further details.

 

Anything else?

 

CFD trading is more tax efficient than traditional Forex trading (trading through an ECN broker) and can be the most tax efficient way to trade (depending on how much you are making and if trading is your primary source of income). Another advantage to CFD trading is that losses can be declared in order to claim tax relief.

Spread Betting - Tax

 

Do you need to pay tax on Spread Betting Profits?

 

Spread Betting is tax free until it becomes your main income. Once your main income comes through spread betting all profits will be liable for income tax. If spread betting is a secondary income then it is the most tax efficient way of trading, if it becomes your main income, CFD trading is much more tax efficient. Spread betting losses cannot be declared for tax relief purposes as spread betting is classed as gambling.

 

How do I declare and pay income tax?

 

You will need to file an annual self assessment tax return with HMRC. This is usually best done online. Contact HMRC for details.

 

Anything else?

 

Don't be fooled by the claims that spread betting is totally tax free. Spread betting is tax free until it is your main source of income. This law is the same for any gambling related activities.

 

Forex Trading - Tax

 

Do you need to pay tax on Forex Trading Profits?

 

Yes. Forex trading through a true or ECN broker is liable for Capital Gains Tax as well as stamp duty and potentially other charges.

 

How do I declare and pay tax on Forex profits?

 

Tax on true Forex trading profits can be more complicated and you should seek the advice of a professional tax accountant.

 

Anything else?

 

If you a new to trading and/or have a a smaller account size (less than £50,000), opening an account with a CFD or Spread Betting Provider is recommended.

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