A question about tax on CFD income

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AJ2005

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I have been trading CFD's since May last year on a fairly limited basis. However, I have come to filing my tax return for year 03/04 and although fully aware that any gains and losses in a closed cfd transaction are subject to CGT, there is a question my accountant and I can not find the answer too - not even from our CFD provider! ....

- Does anyone know whether the income from dividend adjustments (ie - that nice wad of cash that is deposited to your cfd account on long positions on ex date), is taxed as income tax, or taxed under CGT? My accountant believes that this cash would sensibly be treated as a capital gain and hence taxed under CGT rules, but there is nothing out there that he can find to verify this...

Would appreciate if anyone had any pearls of wisdom on this....many thanks. (If this income is treated as Capital Gains, could any negative cash flow from a short position at ex date be offset against gains?)

AJ :cool:
 
Asked them and they said ask your cfd provider - case of passing the buck going on...!!
 
Get the IR to put in writing that you have asked them the question, and THEY advised you to ask someone else.

Then, use the method that is most beneficial to YOU.

PS: I should have asked you beforehand if you had asked the IR before posting !!
 
I have previously been advised that it is not classed as CGT and should be declared as income but to be honest I was never convinced of this.


Paul
 
Hi guys, excuse my ignorance....but hopefully you can help me here too. I understand that CGT is applied to the profit (loss) made on the sale of assets. How could CFDs be classed as assets when you do not own a piece of the underlying company?

Have I missed something?

Rock
 
rockwallaby said:
Hi guys, excuse my ignorance....but hopefully you can help me here too. I understand that CGT is applied to the profit (loss) made on the sale of assets. How could CFDs be classed as assets when you do not own a piece of the underlying company?
Click to expand...
"CGT is charged on net gains, i.e. total chargeable gains realised during a tax year after deducting total allowable losses realised in the year."
http://www.netaccountants.com/capgain.html

"When taking out a CFD you do not have to pay the full value of the shares - called trading on margin. Typically you will pay between 10% and 25% of their actual value. You do not pay no stamp duty*, unlike with share purchases, because you never actually own the shares. But you do pay capital gains tax* on any profits as you do with normal share-buying. "
http://www.thisismoney.com/undated/si57987.html
 
Thanks for the responses -

Jaison - if the dividend is shown as taxable, why do the CFD providers not provide you with any form of tax certificates at year end - surely if everything in margin trading is the same as share-trading tax-wise, they should be obliged to send out consolidated tax certs?? Kind of lost me - sorry -

I have since written a letter to my provider asking an explanation so will keep you posted.
 
Sorry, I was wrong.

A dividend is something I don't worry much about as I don't hold positions long enough.

If you are short you have the full dividend deducted from your account.

If you are long then you get the dividend but without the 10% tax payment (ie 90% of the dividend). Since there is no tax payment paid on your behalf it is not liable to income tax but will be liable for CGT.
 
Inland revenue sent me a print from from their capital gains manual which confirms previous
point on this thread. Dividends, interest ,commissions, gains/losses are all rolled in together for CGT.
In their words "the chargeable gain is the difference between the amount deposited and the closing balance"
This appears to be from their internal system. The reference is CG56101 if you want to get a copy from them
 
I enquired about this with the IR last year and the conclusion was that dividend adjustments are classed as capital gain/loss. The commission is an acceptable capital cost. The interest you pay/receive on long/short postitions are classed as capital, along with other direct costs, such as special borrow fees. The interest you receive on cash in your margin account is classed as income.

Given this information I came to the conclusion that if you want to go long ahead of a dividend, it is probably more tax effective to do this through real shares, rather than CFD. This is because the dividend adjustment you receive in your CFD account is equivalent to the dividend, net of basic rate income tax. Thus if you are over your CGT limit you will be effectively paying double tax on the dividend adjustment.
 
Hi ,

I have seen many different case on the forum but i couldn't find any that fits to my profile .
Im planning to start live trading with a CFD broker. i live and work in the uk also employee of a company and earn approx. 15-16 k / annum. if i make lets say 500-1000 ponds profit or loss how do i pay tax after that? after loss i dont pay tax but i can offset it next year assumedly.
I trade only options but does it really matter what is the underlying since it is CFD i owe the gain or loss i made on the contracts . is it right?
im planning to execute trades 3-4 times a week and not holding them longer than a day or two.
i would trade as a hobby not for business.

I found this example on gov.uk and from that point I am confused

"Example

Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,100.
First, deduct the tax-free allowance of £11,100 from your taxable gain. This leaves £1,000 to pay tax on.
Add this to your taxable income. Because the combined amount of £21,000 is less than £31,785 (the basic rate band for the 2015 to 2016 tax year), you pay Capital Gains Tax at 18%.

This means you’ll pay £180 in Capital Gains Tax."


"The standard Personal Allowance is £11,000, which is the amount of income you don’t have to pay tax on."
"You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The tax-free allowance is £11,100"
( both from gov.uk )

So are there taxable income and taxable gains with different allowances ? in that case i dont pay tax on that small amount of gain ... but that would be too easy and sounds too good :D

Any advice comment would be appreciated .


Thank u
 
hegilento said:
Hi ,

I have seen many different case on the forum but i couldn't find any that fits to my profile .
Im planning to start live trading with a CFD broker. i live and work in the uk also employee of a company and earn approx. 15-16 k / annum. if i make lets say 500-1000 ponds profit or loss how do i pay tax after that? after loss i dont pay tax but i can offset it next year assumedly.
I trade only options but does it really matter what is the underlying since it is CFD i owe the gain or loss i made on the contracts . is it right?
im planning to execute trades 3-4 times a week and not holding them longer than a day or two.
i would trade as a hobby not for business.

I found this example on gov.uk and from that point I am confused

"Example

Your taxable income (your income minus your Personal Allowance and any Income Tax reliefs) is £20,000 and your taxable gains are £12,100.
First, deduct the tax-free allowance of £11,100 from your taxable gain. This leaves £1,000 to pay tax on.
Add this to your taxable income. Because the combined amount of £21,000 is less than £31,785 (the basic rate band for the 2015 to 2016 tax year), you pay Capital Gains Tax at 18%.

This means you’ll pay £180 in Capital Gains Tax."


"The standard Personal Allowance is £11,000, which is the amount of income you don’t have to pay tax on."
"You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The tax-free allowance is £11,100"
( both from gov.uk )

So are there taxable income and taxable gains with different allowances ? in that case i dont pay tax on that small amount of gain ... but that would be too easy and sounds too good :D

Any advice comment would be appreciated .


Thank u
Click to expand...

correct, you are below your annual exemption...no tax to pay
 
I guess a tax consultant would better helps us in calculating our tax details..
 
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