montmorencyt2w
Senior member
- Messages
- 2,619
- Likes
- 294
Tax position of full-time traders - WAS:- Re: Overnight financing
I thought I'd go looking for some recentish information on the tax treatment of traders in the UK. A lot of the postings in the relevant section of T2W seem fairly old, and may no longer be relevant (supposing that they were entirely accurate in the first place).
This one is interesting, in that it shows the problem of one person trying to prove to HMIT that he is _trying_ to make a profit, and they are arguing that he is a "hobby trader", so he cannot offset his losses.
http://www.justanswer.com/uk-tax/4fngq-full-time-trader-forex-market-working-home.html
In part of the answer, it says:
True about the hypocrisy, obviously. But the fact that they would probably charge income, and not CGT, backs up what I was saying earlier: that basically, over and above the standard allowances and allowable expenses, the trader can look forward to parting with upwards of half his trading income to HMRC. Now say what you like, but that would seem to outweigh a fair amount of slippage, dodgy spreads, and requotes. In any case, it seems like the tax position of the trader is anything but clear and simple, and for people to blithely encourage others to give up spread-betting and move on to "real trading", is a bit disingenuous in my opinion.
But just say they do so, what are their alternatives? Spot Forex brokers? But are they not also market makers and does not a lot of what is supposed to apply to spread-betting firms also apply to them? It would seem that you (@Charliechan) would seem to agree with this, from one of your older posts, in which you talk about them "taking your eyes out". I also get this impression from postings one sees elsewhere regarding the US Forex broker market.
It seems that the only "proper" way of trading Forex is with Futures contracts, and to trade a full contract of (for Euro/US) €125,000 you are talking of a $12.50 tick size, and a substantial account size, certainly larger than the beginner spread-better is used to.
Now someone posted to the spread-betting section of T2W recently, encouraging spread-betters to look at E-mini and E-micro futures contracts. I had never considered this, but I was not too much a closed-minded defender of spread-betting not to do so. However, although he was posting in good faith, he hadn't quite checked his facts, as he claimed that E-minis, which he thought were the more liquid of the two, were equivalent to $1.25/tick. When I checked for myself on the CME Group website, I discovered that not only did this apply to E-micros and not E-minis, but also that neither was particularly liquid. (For similar reasons, I don't take what people baldly state here about the taxation of traders at face value, but always try to verify for myself). And E-minis are half a standard contract, so $6.25/tick, which could also be a bit of a challenge to a beginner.
But if you were OK with E-minis or E-micros, you still have to find the right broker, another possible minefield.
So let's come back to spread-betting firms for a minute. You may have noticed postings from "gle" in this part of the forum. He seems about as hard-headed as anyone on T2W (and more open-minded than most). He has noticed a marked improvement in the world of spread-betting in the last few years, and I think I have, also, although I've only been in it since early 2008. (And I'm not even sure if he benefits from the tax advantages that UK spread-betters currently have, so he must find it advantageous for other reasons).
Of course we need to be clear-headed, and wary (which is true in trading generally). But let us not make too many negative assumptions about spread betting firms. Hopefully the cowboys will go to the wall and the good guys will survive, but this is never guaranteed.
I thought I'd go looking for some recentish information on the tax treatment of traders in the UK. A lot of the postings in the relevant section of T2W seem fairly old, and may no longer be relevant (supposing that they were entirely accurate in the first place).
This one is interesting, in that it shows the problem of one person trying to prove to HMIT that he is _trying_ to make a profit, and they are arguing that he is a "hobby trader", so he cannot offset his losses.
http://www.justanswer.com/uk-tax/4fngq-full-time-trader-forex-market-working-home.html
In part of the answer, it says:
[My emphasis]
True about the hypocrisy, obviously. But the fact that they would probably charge income, and not CGT, backs up what I was saying earlier: that basically, over and above the standard allowances and allowable expenses, the trader can look forward to parting with upwards of half his trading income to HMRC. Now say what you like, but that would seem to outweigh a fair amount of slippage, dodgy spreads, and requotes. In any case, it seems like the tax position of the trader is anything but clear and simple, and for people to blithely encourage others to give up spread-betting and move on to "real trading", is a bit disingenuous in my opinion.
But just say they do so, what are their alternatives? Spot Forex brokers? But are they not also market makers and does not a lot of what is supposed to apply to spread-betting firms also apply to them? It would seem that you (@Charliechan) would seem to agree with this, from one of your older posts, in which you talk about them "taking your eyes out". I also get this impression from postings one sees elsewhere regarding the US Forex broker market.
It seems that the only "proper" way of trading Forex is with Futures contracts, and to trade a full contract of (for Euro/US) €125,000 you are talking of a $12.50 tick size, and a substantial account size, certainly larger than the beginner spread-better is used to.
Now someone posted to the spread-betting section of T2W recently, encouraging spread-betters to look at E-mini and E-micro futures contracts. I had never considered this, but I was not too much a closed-minded defender of spread-betting not to do so. However, although he was posting in good faith, he hadn't quite checked his facts, as he claimed that E-minis, which he thought were the more liquid of the two, were equivalent to $1.25/tick. When I checked for myself on the CME Group website, I discovered that not only did this apply to E-micros and not E-minis, but also that neither was particularly liquid. (For similar reasons, I don't take what people baldly state here about the taxation of traders at face value, but always try to verify for myself). And E-minis are half a standard contract, so $6.25/tick, which could also be a bit of a challenge to a beginner.
But if you were OK with E-minis or E-micros, you still have to find the right broker, another possible minefield.
So let's come back to spread-betting firms for a minute. You may have noticed postings from "gle" in this part of the forum. He seems about as hard-headed as anyone on T2W (and more open-minded than most). He has noticed a marked improvement in the world of spread-betting in the last few years, and I think I have, also, although I've only been in it since early 2008. (And I'm not even sure if he benefits from the tax advantages that UK spread-betters currently have, so he must find it advantageous for other reasons).
Of course we need to be clear-headed, and wary (which is true in trading generally). But let us not make too many negative assumptions about spread betting firms. Hopefully the cowboys will go to the wall and the good guys will survive, but this is never guaranteed.
