Captial Gains Tax rate on CFD trading when you have no income

[0FXTrader0]

If I have no income and make profits on my CFD trading do I pay the low rate of 10%?

 

[tomorton]

Yes it looks like you would - https://www.litrg.org.uk/tax-guides/other-tax-issues/capital-gains-tax

Of course gains from trading via spreadbetting are tax-free..............

 

[0FXTrader0]

thanks for reply, the reason I dont spread bet anymore is I am trading day in day out so it would be considered a trade and treated as income tax which is alot more than 10%

 

[tomorton]

How are you so sure about SB and income taxation? Maybe you have some direct knowledge of this?

I've read occasionally that SB traders with high profits from SB are termed professional gamblers by HMRC and find they are then subject to income tax. However, not a single reliable case has yet emerged.

 

[0FXTrader0]

Just what I've read here

• You don’t currently have to pay CGT on spread betting winnings because it is considered a form of gambling. Although you could be liable to income tax if your spread betting is deemed to be a trade, that is if you’re living off the profits made.

Spread bets and contracts for difference (CFDs)

Financial spread betting and contracts for difference (CFDs) are high risk ways to gamble on the stock market

www.moneyadviceservice.org.uk

 

[0FXTrader0]

I believe that spread betting is tax free if you lose (so whats the point) and taxable when you win...exception being if you work a 9-5 and make a bit on the side would be tax free

 

[malaguti]

If trading is considered your primary source of income, regardless of CFD or spreadbetting, it is subject to income tax.
CGT is about selling an asset. where you are carrying on as a primary source of income, its not considered an asset anymore

your allowance for CGT becomes irrelevant, the tax rates for CGT also become irrelevant.
spreadbetting which is normally tax free, is also irrelevant

so you need to be very clear if this really is your primary source of income.
the other thing that is important is your country of domicile. I'm assuming you are UK
if this is not YET your primary source of income, only then does CGT/spreadbetting rules apply

 

[0FXTrader0]

ouch gonna have to pay high income tax rate then in UK thought I would get away with a 10% haircut

 

[malaguti]

not necessarily. im only going by what you've said. there is more such as..
what did you make last year was it the same, and are you expecting to make the same next year? if this year is a blip, then again tax becomes a little more subtle.

 

[0FXTrader0]

Going to be a consistent income. Is there a work around ie trade cfds upto the tax allowance for income tax and do the rest in a spread betting account

 

[malaguti]

the best workaround is get a job where you work a few hours a week, thats your income tax sorted as your primary source of income and then spreadbet. all of it is then tax free.
your suggestion wouldn't work, you do not have a tax allowance, as its still your only income.

 

[tomorton]

If trading is considered your primary source of income, regardless of CFD or spreadbetting, it is subject to income tax.
CGT is about selling an asset. where you are carrying on as a primary source of income, its not considered an asset anymore

your allowance for CGT becomes irrelevant, the tax rates for CGT also become irrelevant.
spreadbetting which is normally tax free, is also irrelevant

so you need to be very clear if this really is your primary source of income.
the other thing that is important is your country of domicile. I'm assuming you are UK
if this is not YET your primary source of income, only then does CGT/spreadbetting rules apply

It would be great to have sources for what you're saying here.

(though I hate to resurrect the age-old is spreadbetting tax-free argument again..............)

 

[malaguti]

It would be great to have sources for what you're saying here.

(though I hate to resurrect the age-old is spreadbetting tax-free argument again..............)

Which part Tom? Spread betting or income tax over CGT or both
I've posted quoting the relevant sections from HMRC in a previous related thread I can dig them out again if it's related to spread betting. CGT should be very straightforward to regurgitate

 

[tomorton]

Which part Tom? Spread betting or income tax over CGT or both
I've posted quoting the relevant sections from HMRC in a previous related thread I can dig them out again if it's related to spread betting. CGT should be very straightforward to regurgitate

Thanks for this. I'm only interested in income tax on SB gains.

I'm sure HMRC have a legal right to apply income tax to any inflows of money which they can show could be treated as income.

But what I've always been waiting to see is a case where they have actually applied this option to a financial spreadbetter.

 

[malaguti]

Here you go Tom, with case examples as well. this is from HMRC


"The profits or losses from gambling or wagering contracts are outside the scope of Income Tax"
you must be "in the profession of gambling" to be taxable. there are a couple of exceptions, around hedging, they too are only relevant based on the profession
“The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade.”

goes on to say what they consider to be a bet..





https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim22020

“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.”


https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim22017

“The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade.”

“This shows that having expertise or being systematic (‘studying form’) is not enough to create a trade of being a ‘professional gambler’.

Some ‘professional gamblers’ do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward.



In Down v Compston [1937] 21TC60 a professional golfer attached to a golf club habitually engaged in private games of golf for bets of varying amounts and won substantial amounts. He was found not to be liable to tax on professional income on the basis that the bets did not arise from the playing services and that there was no organisation to support the view that he was carrying on the business of betting on the games of golf.


https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim56900

For individuals and others not within the charge to Corporation Tax the position is different. In such cases you will need to examine the contract to see if it is a gambling or wagering one. There is guidance on this at BIM22016. The profits or losses from gambling or wagering contracts are outside the scope of Income Tax (see BIM22015). However, this will not apply if the spread bet is used for a commercial purpose such as a hedge where the guidance at BIM56880 should be followed.

What is a bet

The first, and obvious, question is simply what is a bet? A definition of a bet or ‘wager’ was given by Hawkins J in Carlill v Carbolic Smoke Ball Company [1892] 2QB484 and has been followed in later cases:

‘It is not easy to define with precision what amounts to a wagering contract, nor the narrow line of demarcation which separates a wagering from an ordinary contract; but, according to my view, a wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of that event, one shall win from the other, and that other shall pay or hand over to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose, whether he will win or lose being dependent on the issue of the event, and, therefore, remaining uncertain until that issue is known.’