Spread betting tax situation

[The General]

All,

For what it's worth:

1) You are not treated like 'ordinary' gamblers because with us there is a paper trail. If a professional gambler makes 10k on the 2.30 at Cheltenham, nobody knows.

2) Because there is this difference, it is of course tempting for the IR to state that as CT's income is solely derived from SB'ing then that is taxable.

3) They will (I believe) make this ruling public as, by definition, if Sb'etting is your sole source of income then you must be a winner. It is obvious that people who are NOT winning (generally) at SB'ing and declare this income as their sole source of income will have to get a job soon.

In my opinion, when the tax man analyses the situation, the above will happen. Only safety net - keep SOME other form of income. They will NEVER (imho) tax this situation as their downside would be MASSIVE.

Cheers,
The General.

 

[TheBramble]

The SBs pay corporation tax on their profits. (I'm presuming this is true).

So the IR do get their money - one way or another.

 

[Virtual prophet]

First time for a long time on T2W; haven't been able to read every post on this thread but wanted to add for the record: I pay tax on spreadbetting.

I took the view that since I'm a full-time trader under DI, and spreadbetting for me is absolutely identical to my other derivative trading, it was clearly taxable. This is the same principle by which a professional horse-gambler can be assessed under DI in certain circumstances.

The IR agreed; that included a year with an overall s/bet loss & years of overall s/bet gains, so initially it wasn't even just a case of them being happy to get their pound of flesh.

This is hugely a grey area of course; many accountants (I've done the Chartered Tax exams myself) and many IR inspectors will differ on it. But for me personally it's clear, and I didn't want to be whacked years down the line with a back-dated assessment.

Whether I use a CFD or spreadbet a/c makes no practical difference for my business; nor does it for tax.

VP

 

[TheBramble]

VP - so can we assume the IR would similarly deem it appropriate to grant rebates to all the losing SBers out there?

Skim, we've got the 'live one' you said to wait for.

 

[Virtual prophet]

Lol, you know how it goes TheBramble. You'll also find there's rules the IR have as to how long you can get away with a business that makes losses: any business. It becomes a "hobby" after a while.

If it's genuinely a business, then there's a strong argument for getting the loss relief. However, a few years of losses followed by a few years of gains, & I'm sure most people would be happy to keep hidden from the taxman overall.

 

[mike001]

virtual prophet

anyone can make voluntary tax contributions over and above what they owe.

with respect it seems to me that this is what you are doing in declaring spread betting gains, because the spread itself contains a tax component.

spread betting companies pay 3% gross profits tax on the profits they make from the spread. But if they hedge in the underlying futures market, thereby if you like assuming the same bet or position as the bettor, they pay full corporation tax on any gains.

so by extrapolation if every spread bettor has a blinding year, and every bet is hedged, the revenue get more tax (30% corporation + 3% GPT) than if they taxed individuals on basic rate and not far off top rate.

ofcourse the Gov't know that most bettors lose over time and to tax individuals on gains would also mean allowing the losses, thereby leading to a lower tax take.

either way they win, and seeing as the Gov't had a formal review just last year on the taxation of spread betting and found that the new system of GPT had led to increased Exchequer revenues, as well as new jobs, it seems unlikely that this will change.

i suppose a logical step for them would (if they were worried about individuals making large untaxed profits) be to simply up the GPT rate to that for sports spread betting, 10%.

so maybe you should consider trading through a company like blue index or interactive brokers where you pay a fee per lot (about £1 over exchange fees) but trade at the actual market price, rather than pay the spread.

mike001

 

[Virtual prophet]

Mike - I use CMC s/bet so no extra spreads. And voluntary over-payments are definitely not what I'm about! If I used s/bet to try to avoid tax on my business activities, it'd be just the same as the builder who's doing my kitchen & has offered to "save me the VAT" if I pay him in cash. (Which of course I will!).

I don't want to get into the arguments of taxing spreadbets, because they seem to have been covered pretty thoroughly above. There's no doubt the IR would rather leave things be, and not allow all those losses to be claimed. Similar argument for leaving pro traders under CGT not DI, so as to avoid losses being carried back against previous income.

I've got all the badges of trade and am under DI; hence I also pay tax on spreadbets (which is a relatively small part of what I do; I think the posts on "solely spreadbetting" miss the point. My occupation is derivative trader, and spreadbetting is a part of it).

 

[mike001]

vp

your example is tax evasion and illegal!

spread betting is free from all UK taxes including stamp and CGT, whether you are a full time trader or not. (Graham v Green)

having said that ofcourse the Gov't could decide in the future to include spread betting under CGT.

i certainly think they will soon tax participants in bet brokerage (betfair et al)

in your case it seems academic anyway......you're not spread betting!

but your right, this is going round and round

good luck
mike001

 

[Virtual prophet]

I do spreadbet Mike - CMC spreadbet.

It's all very well relying on Graham v Green, but personally I'd not set too much store on 1925 caselaw! Pro gamblers can be taxed under DI, period. (The key word, of course, being "can").

 

[CityTrader]

Silly question ( still waiting for the tax inspectors ruling, ) but what is DI ?

 

[cashtrader]

If 95% of the SB punters lose and 5% make a full time living (sole income) because they are successful, they still would not be liable for any form of CGT or income tax. They could never tax 5% of winners because if a winner eventually turns out to be a loser do you the the IR are going to offset taxes on losses. If they did the the 95% of losers can have a field day! The revenue could lose billions!!

If an exempt tax ruling is made on SB then it can't be changed in favour of consistant winners to the detriment of consistent losers.
Any tax lawyer will tell you that.

If anyone is stupid enough to declare his/her SB income when in the eyes of the law (present legislation) it is a form of gambling, then he/her should have heir brain examined!

 

[Virtual prophet]

Citytrader - "D1" is one of the tax schedules, income from self-employment. Sched A is income from land & property, E is from employment etc . .

(Incidentally: are you waiting for your tax inspector to decide, or have you gone to the Commissioners? It's they who need to rule on it, specifically the Special Commissioners).

Cashtrader - this has been addressed above. If you're a consistent loser, then spreadbetting isn't your business. If you're a consistent spreadbet winner, it may very well still not be your business, depending on the badges of trade (what else you do, frequency, how you earn your main livinng etc).

If you're not a sole trader, spreadbetting isn't taxable/losses aren't allowable. This is basic stuff.

The question is: if trading derivatives is your business, then where does that leave spreadbetting? In my case, it's taxable. But that's not going to be the case for the vast majority. Most traders manage to stay under CGT not income tax, and that's a different argument altogether.

Seems to be a lot of confusion about this point.

 

[donaldduke]

"Incidentally: are you waiting for your tax inspector to decide, or have you gone to the Commissioners? It's they who need to rule on it, specifically the Special Commissioners".

Why bother going to commissioners when you the IR will
give you a pass?

 

[MGBRoadster]

Tax queries

I'm starting to make fairly consistent profits from SB, and am thinking of going direct access, but I'm unclear on some tax issues.

As far as I can establish I would be liable to tax on profits from CFDs, options, forex etc as CGT unless I "gave up the day job", when it would be income tax.

If I set up a limited Company to trade would Corporation Tax (at 18% ish) be taken instead? I know I would have to get the money out of the Company with a potential further tax liability, but it may be worth considering.

What's the position if I trade US stocks within a SIPP (self invested personal pension) ? Presumably no tax to pay and no stamp duty? And Gordon contributes as well??? No... too good to be true.

Sorry if this has been answered elsewhere

 

[knorrie]

Yes you can trade US stocks in a SIPP, pay no stamp duty and GB contributes. But remember you can't take the money out until you retire, and you are taxed on your pension income then (but you do get a proportion as a tax-free lump sum).

I do most of my trading in my SIPP and PEPs/ISAs. SIPPs are actually more flexible trading vehicles, in that they allow a wider range of instruments, and include the ability to go short with covered warrants or CFDs, also avoiding stamp duty, which you can't do in PEPs/ISAs. Not many pension providers have the CFD option yet, but E*Trade is one of them.

There is a successful day-trader over on Motley Fool UK (kenmegsmith), who scalps CFDs using the E*Trade direct-access platform within his SIPP. He also trades outside the SIPP to generate income, as he trades for a living. Have a look back at some of his posts over the last few months on the "Day Trading - The Devil's Den" board to learn more.

KenN

 

[CityTrader]

(Incidentally: are you waiting for your tax inspector to decide, or have you gone to the Commissioners? It's they who need to rule on it, specifically the Special Commissioners).

Well after 5 months, I assume the local tax inspector has referred it to the special commissioners, or would they have informed me of this prior to doing it? My accountant doesn't think it's a good idea to hassle them....

 

[MGBRoadster]

Thanks for the link, knorrie. Much useful info.

 

[Airthrey Capital]

There is a firm of accountants which has a specialist tax adviser specifically for financial traders.

They have written a report which you can get direct from them (£195 + vat)....

http://www.trioacc.co.uk/taxconsult/taxtraders.html

 

[JonnyT]

Someone please buy this then email me the document!

JonnyT

 

[Virtual prophet]

Still nothing been heard CityTrader?

We're well overdue some IR guidance on traders; I pay income tax and NI as a sole trader on CFD & spreadbet trading profits, but I don't blame others for not doing so, when the law's so grey on it. Personally I like to know for sure where I stand, & also to have "net relevant earnings" for pension contributions.