Spreadbetting & location

[Visaria]

Did you only ask one helpline person and rely on that? I know I have had conflicting advice from different people at the tax office!



The royal family don't pay taxes anyway do they? No matter what the rules are for anyone else?

Yes, they are certainly liable for inheritance tax and probably income and cap gains as well.

Edit: As roguetrader just pointed out, there probably are some exemptions etc that the Royals are 'entitled' to so not a good example.

Actually I asked two different Inland Revenue 'advisors' a month apart and received the same answer. Obviously they may have given me wrong advice!!! I also consulted a friend of mine who's a corporate tax consultant who said the same thing (but then he's not a personal tax guy...)

 

[roguetrader]

Did you only ask one helpline person and rely on that? I know I have had conflicting advice from different people at the tax office!

Hi Racer, that very issue was why I said in my advice to jtrader to get Inland Revenue advice / statements in writing as you may need proof that you sought and received and acted on official advice at some point in the future, I too have encountered instances where the stance varies from one local office to another. If you don't have it in writing then you will be deemed to be the one who "made a mistake" or mis-understood"

 

[Visaria]

Hi Racer, that very issue was why I said in my advice to jtrader to get Inland Revenue advice / statements in writing as you may need proof that you sought and received and acted on official advice at some point in the future, I too have encountered instances where the stance varies from one local office to another. If you don't have it in writing then you will be deemed to be the one who "made a mistake" or mis-understood"

That's v good advice. I'm becoming a little worried now!!!!

 

[roguetrader]

The royal family don't pay taxes anyway do they? No matter what the rules are for anyone else?

Wouldn't go as far as to say that but they certainly have had the sympathy of the referee in the past.

http://www.guardian.co.uk/jubilee/story/0,,724438,00.html

 

[Visaria]

This too is questionable to say the least, the inland revenues policy on gambling is designed for and pertains to the act of casual gambling. If you seek to derive a consistent source of income from gambling, spreadbetting, or any other activity that would normally be considered for tax purposes to be a casual activity, then the Inland Revenue reserves the right to assess the circumstances on a case by case basis.
Rough translation.....If you spreadbet for a living, have no other source of income , namely a normal taxable job. You will most likely be deemed as undertaking this activity for the express purposes of deriving an income, and if you are any good at it you will likely be taxed, just as professional gamblers are. Of course you may deem it fit not to declare this and take your chances.

This is seriously annoying. When I asked about taxes on gifts to the the inland revenue 'advisor', i also enquired about taxes on spreadbetting. I was told no taxes on gambling unless you were running a business which faciIiated gambling e.g. being a bookie. Otherwise no taxes. This to me says that you can spreadbet as much as you like whether it be part time or full time without paying taxes on any winnings since you're not faciliating gambling but merely usingthe facility. I want to become a full time spreadbettor, but if there are tax implications I will have to think again. Have I been given the wrong advice? What's the matter with these people?

BTW I didn't know professional gamblers were taxed. Were you referring to bookies/casino/poker type guys?

 

[roguetrader]

This is seriously annoying. When I asked about taxes on gifts to the the inland revenue 'advisor', i also enquired about taxes on spreadbetting. I was told no taxes on gambling unless you were running a business which faciIiated gambling e.g. being a bookie. Otherwise no taxes. This to me says that you can spreadbet as much as you like whether it be part time or full time without paying taxes on any winnings since you're not faciliating gambling but merely usingthe facility. I want to become a full time spreadbettor, but if there are tax implications I will have to think again. Have I been given the wrong advice? What's the matter with these people?

BTW I didn't know professional gamblers were taxed. Were you referring to bookies/casino/poker type guys?

LOL Visaria, have you been given the wrong advice? Problem is you are entering the "twilight zone" of the Inland Revenue. The rules as bandied about, were never designed to cover "Professional Gamblers"....get real, everybody knows "gambling's a mugs game" "gamblers never win" errr except that some do..

Spreadbetting obviously falls into the same category for tax purposes, and again the Inland Revenue takes the same view, overall few win, and it's not something many can do for a living,.so few as to not warrant changing tax law. Let's face it the claims for rebates and allowances etc would be ridiculous. However given that a minority of people are able to make money from activities considered as "normally tax free" the Inland Revenue will look at how the activity is conducted, two key ingredients, does he/she consistently make money. Is he/she undertaking this activity like a business. The latter is how they separate it from the "conventional" view of spreadbetting or gambling.

One of the problems with tax law as many will attest is that it is rather open to interpretation, even by the people at local level enforcing it, so the only thing that is really important is the interpretation you local office puts on it, not mine. Write to your local office, detailing your query and get a reply in writing, keeping it, and a copy of your inquiry for future protection. Bear in mind when making the inquiry that specifically what you ask them may have a strong bearing on how they reply, many people when asking questions leave out certain information because they know it may lead to an answer they don't want to hear
For example if you were to phone your local office and say "Hi, my names Joe Bloggs, am I right in believing that profits from spreadbetting are tax free?' The reply is likely to be "Yes." Even possibly when adding..."Cool, cause I was thinking of having a go at it for a living." The support likely thinks "Yeah right, best of luck!"
However if the add on was "Cool, cause I've been making 60K a year for the past couple of years and just wanted to make sure." I think the response might be different.

Now having said all that 1) Different offices interpret differently, all you really care about is how yours interprets. 2) I'm not sure exactly how they determine where the activity constitutes a business. It's just something to be aware of and protect yourself. Playing chicken with the Taxman is not a wise move.

 

[Visaria]

Thanks for that reply Roguetrader. As you may have guessed, I'm more than a little disconcerted about the tax position. I did quite a bit of research and came up with this:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM22017.htm

I took this from a tax forum, the posters being tax pros:

http://taxationweb.co.uk/forum/discuss.php?id=1201

The document comes from HMRC themselves. Since spreadbetting is gambling (by definition) surely the case is then that spreadbetting as a full time occupation is not considered a trade and therefore income derived from this activity is not liable for any tax.

Edit: check this out as well:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM22020.htm

Appreciate any comments.

 

[Rainmaker]

well researched, visaria.

i take a bit of a pragmatic view. hmrc do not want to open the floodgates to thousands of punters claiming relief for losses. the tax advisors would soon dream up cunning strategies for wealthy clients. imagine the paperwork!

i think hmrc take the view that most punters actually lose money, so overall the status quo will be maintained. if they feel they are losing revenue due to the spreadbetting loophole, they will just close it completely, rather than cherry-pick the punters who they want to tax.

all imho of course!

 

[roguetrader]

Hi Visaria, I see you've been busy. I have read some of the links before, in particular, the colourful forum, and "The case of Graham v Green [1925] "
Not sure how you view things in light of your research. Personally it just left me with the feeling of;
"Damn, that's complicated!"

I think everyone and his dog agrees that in the eyes of the IR spreadbetting is gambling. Also, and because of this, an individual who places a "bet" or "bets" with a spreadbetting establishment si not subject to normal income tax law, whether you win £1 or £1,000,000.

If a problem arises then it will be out of the way that you conduct your activity. Do you make a conscious organised effort to make spreadbetting your main source of income? As such you would be deemed to be self-employed and running a business, and required to register for Schedule D status Of course the problem there is, how they define what a "conscious, organised effort" consists of.

The way I would handle it would be to write to my local IR office detailing what I intended to do, making much use of the words "spreadbetting" and "speculation" (let's face it, you do want a particular answer, you just don't want to deceive them to get it, nothing wrong with a little coaxing) and asking them about two key points.
1) About any reporting needs.
2) Clarification of any circumstances where an individual placing bets with a Spreadbetting establishment would be liable to pay tax.

I would have thought once they committed to taking a stance in writing on this, there would be little room for recrimination on their part should they become interested in you in the future.

As far as inconsistencies in advice between one individual in the IR and another, I wouldn't give a damn about that, you simply want to ensure that you cannot be accused of any wrong doing, and if you have proof that you clearly requested information and have that information / advice in writing, which you then acted on, then I believe you have proof that you acted in good faith

 

[dcarrigan]

Thanks for that reply Roguetrader. As you may have guessed, I'm more than a little disconcerted about the tax position. I did quite a bit of research and came up with this:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM22017.htm

I took this from a tax forum, the posters being tax pros:

http://taxationweb.co.uk/forum/discuss.php?id=1201

The document comes from HMRC themselves. Since spreadbetting is gambling (by definition) surely the case is then that spreadbetting as a full time occupation is not considered a trade and therefore income derived from this activity is not liable for any tax.

Edit: check this out as well:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM22020.htm

Appreciate any comments.

with the new sb companies wrapping up live futures into spread betting for tax purposes, the subject may be looked into again by the inland revenue.? with f b taken the lead it will only be a matter of time.

 

[Visaria]

with the new sb companies wrapping up live futures into spread betting for tax purposes, the subject may be looked into again by the inland revenue.? with f b taken the lead it will only be a matter of time.

I don't agree. Whether you spread bet or if you use the real futures market, it's the same situation, that of an overwhelming numbers of losers versus winners.

 

[Visaria]

Roguetrader, you mentioned earlier in this thread that successful spreadbettors will 'likely be taxed, just as professional gamblers are'.

Do you personally know of any pro gamblers who are taxed or read articles etc that lead you to say that?

 

[Amun-Ra]

ROFL.....err I don't think the Inland Revenue concern themselves too much with "fair"


That, I know as a statement in isolation is incorrect, very little research into tax reporting will reveal that there are a whole slew of laws regarding "gifts" depending on who is making them and to whom. If this were the case nobody would ever pay inheritance tax, you'd simply gift your money away before you died. What you were told no doubt was true for the specific case put to them.

This too is questionable to say the least, the inland revenues policy on gambling is designed for and pertains to the act of casual gambling. If you seek to derive a consistent source of income from gambling, spreadbetting, or any other activity that would normally be considered for tax purposes to be a casual activity, then the Inland Revenue reserves the right to assess the circumstances on a case by case basis.
Rough translation.....If you spreadbet for a living, have no other source of income , namely a normal taxable job. You will most likely be deemed as undertaking this activity for the express purposes of deriving an income, and if you are any good at it you will likely be taxed, just as professional gamblers are. Of course you may deem it fit not to declare this and take your chances.
My advice seek either the advice of a chartered accountant and or the advice of your local Inland Revenue office......in writing.
I Read a few months ago of a sob story from someone who had fallen foul of the Inland Revenue and was now under investigation, some 7 months in, all his accounts were still frozen whilst they conducted their enquiries. They will be in little rush to resolve the matter and do not see ignorance as a defence.

i agree. traders can read the relevant revenue application by searching for BIM22020 on the HM revenue customs site. would like to know if anyone can show definitively that this is incorrect.

 

[Visaria]

i agree. traders can read the relevant revenue application by searching for BIM22020 on the HM revenue customs site. would like to know if anyone can show definitively that this is incorrect.

What is incorrect? BIM22020?

 

[Amun-Ra]

professional spreadbetting is not tax free in the UK.

 

[hornblower]

As I understand it
spread betting is taxable if ,
it is the main source of you income

 

[wasp]

From the HM Revenue & Customs site...


BIM22015 - Trade: exceptions & alternatives: betting and gambling: introduction

The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:

“A bet is merely an irrational agreement that one person should pay another person on the happening of an event.”

This decision has stood the test of time. In an Australian case, Evans v FCT [1989] 20ATR922, 89ATC4540 Hill J said:

“There has been no decision of a court in Australia nor, so far as I am aware, in the United Kingdom where it has been held that a mere punter was carrying on a business.”

However, an organised activity to make profits out of the gambling public will normally amount to trading.

Although over time new forms of games of chance have evolved, these principles remain the same. The taxpayer placing a spread bet is not normally carrying on a trade (see BIM22020 for exceptions). They are not taxable on the profits, nor do they receive relief for their losses. The bookmaker organising the spread bet is taxable on their profits.



BIM22020 - Trade: exceptions & alternatives: betting and gambling: spread betting

The principles of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 (see BIM22019) apply equally here.

To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done.

 

[Amun-Ra]

Hornblower, i agree with you. as i understand it, professional spreadbetting is taxable - treated as a trade.

 

[Visaria]

Hornblower, i agree with you. as i understand it, professional spreadbetting is taxable - treated as a trade.

I think it's quite clear that professional spreadbetting, assuming it's not connected with a trade e.g. hedging interest rates on your property business, is gambling and is not subject to tax. Gambling is not a trade. There is no economic substance in a spreadbet unless you are using it, to use the earlier example, to hedge interest rates on loans to some business.

The only worry I had was if it was subject to tax on schedule VI or on some other provision but the tax guys on the tax forum don't think so.

Having said that, I agree it is wise to obtain professional advice or confirmation from HMRC.

 

[Amun-Ra]

I think it's quite clear that professional spreadbetting, assuming it's not connected with a trade e.g. hedging interest rates on your property business, is gambling and is not subject to tax. Gambling is not a trade. There is no economic substance in a spreadbet unless you are using it, to use the earlier example, to hedge interest rates on loans to some business.

The only worry I had was if it was subject to tax on schedule VI or on some other provision but the tax guys on the tax forum don't think so.

Having said that, I agree it is wise to obtain professional advice or confirmation from HMRC.

My opinion is that HMRC would tax a pro's profits and cite the economic substance of the trades as reason enough, i.e. sole source/main source of income, not an aside to another (main) economic activity.