Capital or Income

[JonnyT]

Hi folks,

I've bitten the bullet, given up the job and am going to trade fulltime in a few weeks time when the kids go back to School.

Initially I'm going to trade the EUR/USD Forex future and Mini Dow Future.

My understanding is that profits (should I make any) will be deemed as capital and thus Capital Gains Tax will apply. Is this correct?

As an extention to this I am married and will also open an account in the wifes name to use up her allowance. Again is this OK?

Thanks

JonnyT

 

[Trader333]

JonnyT,

It would be advisable to take professional advise on this and this is because every individual's circumstance is different and there are many variables that can have an effect.


I wish you the best in your new venture.


Paul

 

[pogle]

Hi folks,

I've bitten the bullet, given up the job and am going to trade fulltime in a few weeks time when the kids go back to School.

Initially I'm going to trade the EUR/USD Forex future and Mini Dow Future.

My understanding is that profits (should I make any) will be deemed as capital and thus Capital Gains Tax will apply. Is this correct?

As an extention to this I am married and will also open an account in the wifes name to use up her allowance. Again is this OK?

Thanks

JonnyT

Jonny,

No advice I'm afraid, but best wishes in your venture.

 

[c6ackp]

(should I make any) - what happened to 100 pips per trade?

Just kidding, all the best - keep us posted...

P.S. you might want to look in on the T-bonds @ 17:30 also - worth a punt at that time (movers & shakers come back from lunch looking to kill someone)...

 

[commanderco]

Hi folks,



My understanding is that profits (should I make any) will be deemed as capital and thus Capital Gains Tax will apply. Is this correct?

As an extention to this I am married and will also open an account in the wifes name to use up her allowance. Again is this OK?

I am not familiar with English tax rules, but they are probably similar to others in many respects.
Tax Departments around the world realise that 95% of Traders lose money and therefore you may well find that there are no defined rules specific to trading for this very reason.
However there is an overwhelming litmus test which simply states that if you engage in an activity for reasons of profit, then that profit is taxable. Whether that profit is treated as capital or income will depend upon the Tax Dept approach and therefore your response by way of a LLC or Partnership or Sole Trader etc. The burden of proof as always falls on your shoulders.
Bear in mind that your trading must be profitable in order that this litmus test be applied.
You cannot claim that you tried to be profitable but the market chose otherwise.
Also, the Tax Dept will take the profit in the year that it was earnt, so be very careful that you do not allow these matters to slide otherwise they will be applying interest & penalties to a profitable year some time ago even if you have recorded losses ever since.
As to the matter of your Wife´s account ... the Dept may decide that if they determine that she lacks the skills to trade then the account was created for the sole purpose of evading tax.
Once again, the burden of proof falls on your shoulders.
Be careful, be very very careful ... trading is a very dangerous game in all respects
and make certain that you get very good tax advice as your account grows.

 

[Tuffty]

JonnyT,

My understanding is that your understanding is correct. However as Paul says above as your personal circumstances may be different so it could possibly change the route you want to go down. Frugi has done some good posts on this subject. If you do an advanced search under ‘Inland Revenue Tax’ by Frugi there are some good links.

The best of luck in the full time endeavour.
Cheers Tuffty

 

[starspacer]

Hi folks,

I've bitten the bullet, given up the job and am going to trade fulltime in a few weeks time when the kids go back to School.

Initially I'm going to trade the EUR/USD Forex future and Mini Dow Future.

My understanding is that profits (should I make any) will be deemed as capital and thus Capital Gains Tax will apply. Is this correct?

As an extention to this I am married and will also open an account in the wifes name to use up her allowance. Again is this OK?

Thanks

JonnyT

Some time ago, I wrote to the Revenue fully disclosing my position (full time trader predominantly using futures). After about a month, I received a letter saying that the matter had been referred to another department. A fortnight after this, I received a letter, presumably from the 'expert' department saying that they could not advise me on my position and I would have to consult a suitably qualified accountant.

Bottom line is that I declare all profit (and loss), itemised on a monthly basis. They haven't classed me as a 'professional trader' (yet) but eventually I will write to them declaring (with supporting evidence) that I wish to be treated as such. The deductables are such that I would be better off in this category.

Be careful about linking accounts with your wife for the reason mentioned previously. I haven't done this as mine couldn't tell a Future from an Isa so (apart from the moral aspect), I would simply dread a tax inspection.

I would recommend Lee Hadnum's book "How to Avoid Tax on Your Stock Market Profits". Very clear with no mumbo jumbo.

Good luck (we all need that)

 

[commanderco]

Some time ago, I wrote to the Revenue fully disclosing my position (full time trader predominantly using futures). After about a month, I received a letter saying that the matter had been referred to another department. A fortnight after this, I received a letter, presumably from the 'expert' department saying that they could not advise me on my position and I would have to consult a suitably qualified accountant.

Bottom line is that I declare all profit (and loss), itemised on a monthly basis. They haven't classed me as a 'professional trader' (yet) but eventually I will write to them declaring (with supporting evidence) that I wish to be treated as such. The deductables are such that I would be better off in this category.

Be careful about linking accounts with your wife for the reason mentioned previously. I haven't done this as mine couldn't tell a Future from an Isa so (apart from the moral aspect), I would simply dread a tax inspection.

I would recommend Lee Hadnum's book "How to Avoid Tax on Your Stock Market Profits". Very clear with no mumbo jumbo.

Good luck (we all need that)

As I have mentioned, I am no expert on English tax law.
However, nothing much changes around the globe and the Tax Office will prefer you to file a return and thereby reveal your stance without they having to declare theirs until it suits.
Once you have filed they can, at their leisure, decide how to treat your return.
If they choose to see the matter somewhat differently from you, they will impose penalities over the whole period including their period of "leisure"
Should you wish to persue they into the court, it will be your resources versus the tax payers resources ... a somewhat unequal battle. During all this you must retain a clear head in order to trade!
Goodluck with yout trading

 

[LevII]

Best to get advice.

On the face of it, if you make capital profits (losses) you are taxed under the CGT regime. Such profits or losses can, however, be dealt with as income receipts / expenses. Usually their choice not yours.

You need to know where you stand, what records to keep and how you can minimise the effect of whatever system you are subjected to.

 

[Vorpal]

Although my accountant is a property specialist he did make the following points regarding taxing my trading income:

1) If your only profession is trading and you 'withdraw' money from your trading account the Inland Revenue will look upon this as 'income' and thus tax you under the Income Tax regime.

2) Any losses incurred while trading under the CGT system, unlike Income Tax, are 'carried forward' to the next year, meaning you will have to suffer any first year loss.

3) If you go down the CGT route you will not be able to claim expenses; phone bills, office, stationary, feed etc.

Personally I am trying to go the CGT route for the last two years and then swap to a limited company as from September. I would have gone this route for the last two years but unfortunately you cannot set up a limited company retrospectively.

As stated above my accountant is actually a property specialist so you'll need to find someone conversant in Trading.


Hope this helps

Vorpal.

 

[donaldduke]

Youll get classed as being in buisness on your account, or carrying on trade, if trading is all you do. And so you will have to Pay income and tax and NICs.

Best to trade through a Ltd company and then you dont have to pay NICs.

 

[Anonymous]

open an account in the wifes name

Just wondering is this a trick question: does that mean you are going to open the account in her name with/without her consent?

 

[JonnyT]

No the account will be with her consent.

JonnyT

 

[Tuffty]

donaldduke

You said you'll get classed as being in buisness on your account, or carrying on trade, if trading is all you do.

Is this from experience or advice? Only it differs to my understanding and (limited) experience in this matter.

 

[chump]

JT,
If you're still interested it will be like this ...your fulltime activity will be taxed in the longer term on a revenue basis not capital gains ..and against this you will be be able to offset losses and costs incurred in the pursuit of your business ..if you are operating from home that will include some allowances worked out on a pro rata basis for running an office theirin.
Initially you could actually simply use your trading against your capital allowances ,but this would simply be a short term solution.. nothing to stop you doing this though and simply give your activity a chance to show whether it will be sufficiently profitable to occupy you fulltime. However , if that proves to be the case then you should immediately notify the IRS that you are becoming self employed has a trader .you've got 3 months to do that from the point you decide to start. The use of capital gains as an option is just to give you a warming up period to see how the activity is going to go. There's no doubt how it will be treated as an ongoing activity.

 

[Tuffty]

chump,

You said, "your fulltime activity will be taxed in the longer term on a revenue basis not capital gains".

Can you tell me where this comes from ie experience with your tax office, accountants advice or IR guidance.

Thanks, Tuffty.

 

[chump]

Tufty,
This is confirmed by personal experience /knowledge ,my accountants and the IRS ..it's a widely applied principle .

 

[Tuffty]

Thanks chump. I'll need to look into this then. All I can say is that it hasn't been applied in every case the IR is aware of. Do you know if being taxed as income you'd pay tax on spread betting profits too then?

 

[Tuffty]

Here giveth the gospel according to the Inland Revenue:

www.hmrc.gov.uk/manuals/bimmanual/BIM65701.htm

 

[chump]

Tufty,
the most important part of that link is this.."The tax cases provide some useful pointers. But each case is dependent on its own facts. It is therefore vital to establish the facts first of all. "

My statement to JT was based on the facts he provided regarding this being a full time occupation and the facts he has provided in the past regarding his preferred platform for trading which is not spreadbetting. I will stand by that statement as to how his activity will be taxed. Re spreadbetting there is the extra complication that this form of activity is deemed to be tax free. However , were it to be done has a full time activity would that still be the case ... Tufty we need a test case ..are you volunteering ?