Difference between Spread betting and CFDs

[FXX]

Taxable
- Provide a service alongside your trading activity
- Trading is of economic substance
- Living off profits made

Use sense if people where allowed to trade a product that mirrors the financial markets tax free under all circumstances the industry would be huge. Its a niche industry with have a go heroes who have not structured there business yet if there consistent. I cant think of a single sensible trader who would classify themselves as a professional client without a ltd to cover the unlimited losses.

trading is of economic substance is linked to carrying on of the trade. It means if you are making money by conducting business around your spread betting I.e getting paid to be on a show, selling a book, teaching to trade, selling signals.

there is no legislation that covers anything to do with living off profits. There have been many cases of professional gamblers winning cases against hmrc who live off their winnings.

 

[0FXTrader0]

These posts show the state of T2W these days not a single trader on here.

There's obviously no need for financial markets anymore as we can all just SB.

 

[ffsear]

I really don't understand your point at all. The fact that spread betting is tax-free does not instantly make it the best go-to product for every trader on the planet. The mechanics of spread betting are hugely limited compared with that of executing a strategy in the underlying markets. It also not even legal in a number of countries.

 

[rogue8]

If I had a large account, I'd start a Ltd company and trade futures. In the mean time, growing my small account, and until slippage starts being too much of a drag, I'll spread bet tax-free as a professional gambler rather than a professional trader. I won't be 'carrying on a trade', acting as a bookmaker or working in any other way to make it liable to taxation (its 'economic substance'). The spread bet is just a wagering contract with gambling circumstances analogous to the case posted earlier: http://www.bailii.org/uk/cases/UKFTT/TC/2020/TC07595.html.


HMRC advice:

https://twitter.com/x/status/1361320242618712064

Spread Betting - Community Forum - GOV.UK

HMRC:

CG56105 - Futures: financial futures: financial spread betting - HMRC internal manual - GOV.UK

www.gov.uk

CG12602 - Introduction and computation: chargeable assets: exemptions from the capital gains charge: currency in sterling, certain chattels, betting winnings - HMRC internal manual - GOV.UK

www.gov.uk

(TCGA92/S51 (1))

BIM22015 to 22020

BIM22017 - Meaning of trade: exceptions and alternatives: betting and gambling - the professional gambler - HMRC internal manual - GOV.UK

www.gov.uk

0FX mentioned https://www.moneyadviceservice.org.uk/en/articles/spread-betting-and-contracts-for-difference
"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."

Living off profits alone does not make it a 'trade', e.g. see the McMillan case mentioned earlier.
22017: "The case of Graham v Green [1925] 9TC309 concerned a man whose sole means of livelihood came from betting..."
"This shows that having expertise or being systematic (‘studying form’) is not enough to create a trade of being a ‘professional gambler’."
And we know that spread betting is gambling with the exceptions that can be found online.

If in doubt about any other exceptions, then seek clarification from a professional.

I'll still write to HMRC though.

 

[postman]

So people should take advice and base there finances off of what random people on the internet are saying.

Your point is well made. People should not listen to random strangers on the internet who spout nonsense with no evidence to back it up. So everyone should ignore YOU!

Why is this such a big deal to you? The answer to every question is 'money' as I tell my children often, so you (like the video of an accountant telling people they need to see an accountant) must have some monetary interest in this. Did you receive an unexpected tax bill recently or do you run a business that sell CFD's? Which one is it?

🤦‍♂️

 

[MasterOfCoin]

Yawn.

I think we've more than clearly established the facts on this one.

I'm happy to leave the fantasy 'FX' traders in their fear mongering state of expecting demands to pay up from HMRC.

If it pleases them to inhabit laa lah uuwtube land where all things are possible and self-proclaimed experts abound, then so be it.

My only concern in posting to this topic was to preserve the hard earned reputation of T2W as a reliable source of information for would-be traders to consult when considering whether trading interests them or not.

I'm satisfied that many well-established long time members have contributed sufficiently to do just that.

Intelligent readers will be able to draw their own conclusions.

😴

 

[0FXTrader0]

When could my spread betting activities be taxable?
If you approach your spread betting in a professional manner, it’s your only source of income and you structure your activities in a way that minimises the likelihood of losses being made

Page not found | Accountants for Traders

Whatever commodities you trade, whether oil, metals or agricultural commodities, spots or futures trades, it is important for you to understand all of the options available to you in your accounting and tax affairs.

www.accountantsfortraders.co.uk

 

[tomorton]

When could my spread betting activities be taxable?
If you approach your spread betting in a professional manner, it’s your only source of income and you structure your activities in a way that minimises the likelihood of losses being made

Page not found | Accountants for Traders

Whatever commodities you trade, whether oil, metals or agricultural commodities, spots or futures trades, it is important for you to understand all of the options available to you in your accounting and tax affairs.

www.accountantsfortraders.co.uk

In the context of the discussion on the website identified this clearly refers to what might happen to SB-ers if there were to be a change of HMRC policy or tax law.

Obviously, if there were to be a change of HMRC policy or UK tax law, then this could potentially affect tax liabilities, but that is true of any legal position - for example, if the law were changed to re-introduce a form of Window Tax on houses. This was repealed in 1851 but there is nothing to say that it might not come back in. I would not be surprised if window suppliers did not put on their contracts that "tax treatment depends on individual circumstances and tax laws are subject to change".

The clear message from the website you quote is that as a SB client there is no tax liability on your SB profits.

 

[barjon]

In the context of the discussion on the website identified this clearly refers to what might happen to SB-ers if there were to be a change of HMRC policy or tax law.

Obviously, if there were to be a change of HMRC policy or UK tax law, then this could potentially affect tax liabilities, but that is true of any legal position - for example, if the law were changed to re-introduce a form of Window Tax on houses. This was repealed in 1851 but there is nothing to say that it might not come back in. I would not be surprised if window suppliers did not put on their contracts that "tax treatment depends on individual circumstances and tax laws are subject to change".

The clear message from the website you quote is that as a SB client there is no tax liability on your SB profits.

You’re wasting your time, Tomo. Mr Misinformation won’t be detered.

 

[new_trader]

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

TL;DR: Spread betting profits are tax free unless you are a broker.

"Carrying on of that trade" means you are a SB broker since you are earning a profit from the carrying on of that trade through commissions/spread rather than the opportunity presented by a trade. This is why (IMO) the HMRC specifies "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."
"Economic substance" is a way of distinguishing between trying to make a profit by way of capital gains from a market opportunity Vs Making a profit by providing a service that allows others to profit from an opportunity.

I used to be in the "professional SB'ers should pay tax" camp, until the above finally sank in. I also called HMRC and spoke to someone about it.

Think about it this way. If I make £5 million from one SB trade, then retire on the profit, will the HMRC tax me? I'm not carrying on the trade, I am not doing it full time, I have no other income...will they look back retrospectively after I have been retired and charge back taxes?

 

[0FXTrader0]

Our team of chartered certified accountants at Accounts Unlocked are specialists in preparing accounts for FX, stocks and shares and crypto currency traders. We have a number of clients who day trade FX, stocks and shares and crypto currency, meaning we’re well versed in the complexities and specific requirements of preparing accounts for traders.

Accountants for FX Traders - Accounts Unlocked

SPECIALIST ACCOUNTANTS FOR FX, STOCKS AND SHARES AND CRYPTO CURRENCY TRADERS Our team of chartered certified accountants at Accounts Unlocked […]

www.accountsunlocked.co.uk

 

[BigDeal]

Aha, so the motive behind your posts now becomes abundantly clear.

 

[timsk]

Our team of chartered certified accountants at Accounts Unlocked are specialists in preparing accounts for FX, stocks and shares and crypto currency traders. We have a number of clients who day trade FX, stocks and shares and crypto currency, meaning we’re well versed in the complexities and specific requirements of preparing accounts for traders.

Accountants for FX Traders - Accounts Unlocked

SPECIALIST ACCOUNTANTS FOR FX, STOCKS AND SHARES AND CRYPTO CURRENCY TRADERS Our team of chartered certified accountants at Accounts Unlocked […]

www.accountsunlocked.co.uk

No mention of spread betting in the link as far as I can see OFXT?

To be fair to you, you've addressed the differences between CFDs and spread betting and put forward a robust case for tading the former in preference to the latter. And that, it must be said, is the main topic of this thread. No one is suggesting that spread betting is superior to other instruments or that there aren't very good reasons to trade other instruments. However, on the specific issue of tax, you haven't provided a shred of evidence to suggest that profits made by spread bettors are subject to any kind of tax in the U.K. Whereas, those that actively trade via the instrument have demonstrated beyond a shadow of a doubt that no tax is liable. Whilst everyone will believe whatever they want to believe, the evidence provided to this thread is all one way traffic and100% of it supports the assertion that no tax is liable on trading profits acrued via spread betting.
Tim.

 

[0FXTrader0]

It seems people really what to feel protected by there SB activities being tax free. When there was more traders on T2W there would have been more balanced argument.

 

[timsk]

It seems people really what to feel protected by there SB activities being tax free. When there was more traders on T2W there would have been more balanced argument.

Hi OFXT,
Well, as others have pointed out, all this has been thrashed out in the past on T2W - and over a decade ago. Whilst there may have been more people on your side of the argument back along - then as now - no evidence was ever produced to demonstrate that tax is liable on spread betting profits. The only thing that could change the status quo is if HMRC decide to tax gambling profits and update the rules accordingly. Unless and until they do that, I fear you'll hit a brick wall with your argument every time.
Tim.

 

[0FXTrader0]

For such a grey area why do people on here put it black and white in there replies. If the HMRC see you as a trader (grey area) you do pay income tax.

 

[tomorton]

Thanks for the video.

To sum up, CFD profits are automatically taxable under CGT, SB profits cannot be taxed under CGT.

SB is not currently subject to income tax but HMRC could change their policy.

He has not himself been taxed on SB profits and was unable to point to anyone who has been.

I think we're back where we started.

 

[FXX]

hmrc find it hard to convict day traders and even here where he wasn't Spreadbetting but was trading in shares

Ali sucker punches HMRC in day trader tax case

This tax case is of interest to all active day traders and dispels certain myths that exist regarding the tax treatment of day trading profits and losses

www.thearmchairtrader.com

what chances do you think hmrc have in court trying to convict someone of taxes through making money off what they class as gambling, which is tax free.

 

[0FXTrader0]

If you take your head out of the sand they will tax a spread better if on the rare occasion they gave them trader status but as 99.99% of SB's are losing they don't want to lose tax revenue from there other income. Most traders who are profiting regularly from the markets have worked out there liable and do not bother with shady spread bet firms.

 

[tomorton]

If you take your head out of the sand they will tax a spread better if on the rare occasion they gave them trader status but as 99.99% of SB's are losing they don't want to lose tax revenue from there other income. Most traders who are profiting regularly from the markets have worked out there liable and do not bother with shady spread bet firms.

I think maybe now we see the motivation behind your campaign to convince us that SB is taxable - its your bias against SB firms.

You say they are "shady". What has prompted this?