Spread betting tax situation

God it's complicated isn't it?

However, if the placing of a spread bet is not normally taxable, and the only exception they come up with is that club owner playing 3-card brag, well, that's not really comparable with the average spread-bettor is it?


However, if someone from T2W is being investigated...

...would be really good to hear the outcome of that some time.


EDIT: Beware a new government in a financially reforming mood though. Who knows what they might come up with, even if it makes little economic sense. If 90% of spread bettors are net losers, I don't think they are going to plug much of a gap in that there deffyseat.
 
montmorencyt2w said:
God it's complicated isn't it?

However, if the placing of a spread bet is not normally taxable, and the only exception they come up with is that club owner playing 3-card brag, well, that's not really comparable with the average spread-bettor is it?
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Spread betting is a bet, not a trade (you are placing a bet you are not buying an instrument and consequently are not entitled to the rights to the underlying instruments you would be if you were trading).

Winnings from betting are not taxed except in very specific circumstance, where its related to a trade (you are a bookmaker making money from offering the bet, the card game that you run is an activity which bring you customer, you are owning horses organizings horses races and betting on thoses).

The fact that you are making a living out of it is NOT one of those circumstance

"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. "
http://www.hmrc.gov.uk/manuals/bimmanual/BIM22017.htm

I was initialy sceptical and thinking "haha tax free trading ? would be too good to be true", but after some research it seems to me that the law is crystal clear and that there is an obvious explanation for this tax "gift", which you just pointed out:

If 90% of spread bettors are net losers, I don't think they are going to plug much of a gap in that there deffyseat.
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I have no clue about spread betting but what I can tell you is that in the poker world we got ~90% of losing player (most of them thinking that they are winner or breakeven obviously) and that trading seems much tougher than poker (competing against well organized teams of smart people having an huge incentive to perform and a lot of edge (1st hand information, execution time, volume effects, access to money, state of the art automates and other things that i m unable to imagine yet).

So yeah it make sense that there isnt that much money to be taken by from spread betting trader when its likely than MORE than 90% of them to lose money.
 
This should hopefully resolve the issue. It's on the BBC Business page and is a question and answer session with John Whiting. It's question 16 on this link: http://news.bbc.co.uk/1/hi/business/10294803.stm

For the idle among you (like myself), here's the question and answer:

"INVESTMENT Q16. If you make a living solely from spread betting on the financial markets, do you have to pay any tax on any profits you make? Katy Bodmin, Halifax.

Probably yes - in that the spread better would be your trade.

The dividing line between a hobby (not usually taxable), an investment activity (usually subject to CGT) and a trade or profession (usually subject to income tax and national insurance) is a bit fuzzy in many ways.

What tips an activity into being a trade are features such as:

* Frequency: the more often you do it, the more likely it is to be a trade

* Motive: were you going into it to make a profit and especially a living? If so it is more likely to be a trade

* Organisation: how serious is this, what accoutrements do you have: the more structure there is, the more likely it is to be a trade

* The nature of the business: is it the sort of thing that is held as an investment or for personal enjoyment? Or is it really only normally dealt with as a trading activity

Of course the advantage of being assessed as trading is that at least you can offset losses. "

So you just have to relate your own circumstances to the above info to try to determine if you are liable to tax. Hope this helps everyone.
 
Having researched this matter in some depth I would have to question the advice given / offered in this article.

Firstly, and most importantly, previous court cases regarding these matters (people who appeared to ‘earn’ money from gambling or betting) never found against the people making the bets. Instead the judge has ruled that people who place a series of bets are NOT carrying out ‘a trade’ for the purposes of taxation. However, people who accept bets are indeed carrying out a trade (ie bookmaker).
The article quoted appears to hinge its argument of the basis of how ‘professional’ (for want of a better word) the person appears to be in his / her actions. I.e. how many bets do they place, over what period of time and what method they might use in generating the trades. My feeling is that the person answering the question in the article is trying to best determine if someone is carrying on ‘a trade or profession’ as might be required to establish tax liability (for Income Tax) as might be required by the Inland Revenue – I’m not sure that the writer understands prior legal precedents set in previous cases of this nature – search the internet for some of these cases and you’ll understand what I mean.

Secondly, if the IR were to starting considering gamblers for taxation via Income Tax then they’d have no option but to offer relief on losses. Since there is nothing to stop people having more than one business or trade anyone who gambled would be able to deduct losses (from gambling) from their taxable income. This would cost the IR a fortune.

In my opinion the piece quoted implies that the IR could simply asses an individual on a very ad hoc basis and without due consideration to previous cases. It also fails to consider that a betting levy is also paid – this is why the ‘winnings’ (which is technically what they are) are free from further taxation.


Hope this also helps.
Steve.
 
not this again...SB is free of tax, endex...make a million, keep a million...
 
stevespray said:
Having researched this matter in some depth I would have to question the advice given / offered in this article.

Firstly, and most importantly, previous court cases regarding these matters (people who appeared to ‘earn’ money from gambling or betting) never found against the people making the bets. Instead the judge has ruled that people who place a series of bets are NOT carrying out ‘a trade’ for the purposes of taxation. However, people who accept bets are indeed carrying out a trade (ie bookmaker).
The article quoted appears to hinge its argument of the basis of how ‘professional’ (for want of a better word) the person appears to be in his / her actions. I.e. how many bets do they place, over what period of time and what method they might use in generating the trades. My feeling is that the person answering the question in the article is trying to best determine if someone is carrying on ‘a trade or profession’ as might be required to establish tax liability (for Income Tax) as might be required by the Inland Revenue – I’m not sure that the writer understands prior legal precedents set in previous cases of this nature – search the internet for some of these cases and you’ll understand what I mean.

Secondly, if the IR were to starting considering gamblers for taxation via Income Tax then they’d have no option but to offer relief on losses. Since there is nothing to stop people having more than one business or trade anyone who gambled would be able to deduct losses (from gambling) from their taxable income. This would cost the IR a fortune.

In my opinion the piece quoted implies that the IR could simply asses an individual on a very ad hoc basis and without due consideration to previous cases. It also fails to consider that a betting levy is also paid – this is why the ‘winnings’ (which is technically what they are) are free from further taxation.


Hope this also helps.
Steve.
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Hiya Steve,

I've also tried to dig up as much information on the subject as I can as well, and HMRC's website isn't exactly definitive on this subject. I don't know if you know who John Whiting is, but he's a tax specialist, so rather than trusting my own judgment and interpretation of tax law and case law, i'd rather listen to his judgment. I'd be convinced it was 100% tax free if there was such a case and the judgment came down in favour of the trader - I haven't seen that yet and knowing how aggressive HMRC are at the moment I'd be surprised if they let any professional traders (spreadbetters) off the hook so lightly. You have highlighted some good points though.
 
I have several friends who trade full time via spreadbetting and none of them pay any tax. That's not to say that the IR havent tried to get their pound of flesh. They took one of my mates to court. His case was slightly different in that he had previously traded via direct access and therefore all his dealing was liable for income tax as it was clearly his profession. Over many years he paid shed loads of tax on that basis. Part of the IR's argument was that he'd changed his method of dealing to "avoid" paying tax (no sh*t Sherlock!) Obviously that argument cannot be leveled at someone who has used SBing all along. Once my friends case got to court it was thrown out in less than 30 minutes. Apparently the judge scolded the IR and they left with their tails between their legs.

In my own experience government departments (DVLA, IR etc) often overstate their powers and also make up their own 'rules' as they go along. I'm sure that many people wilt under pressure and just play ball. My own local tax office told me that someone in my area is classed as a 'Professional Gambler' and produces a profit and loss sheet like any other business. Clearly this guy is ill informed and, if it were me, I'd challenge the IR. The problem is that the only way to do that is to refuse to pay any tax! You can see the problem. My guess is that some people just pay in order to avoid the stress. I agree with you - it would be good if there were a couple of high profile cases which went to court.
 
stevespray said:
I have several friends who trade full time via spreadbetting and none of them pay any tax. That's not to say that the IR havent tried to get their pound of flesh. They took one of my mates to court. His case was slightly different in that he had previously traded via direct access and therefore all his dealing was liable for income tax as it was clearly his profession. Over many years he paid shed loads of tax on that basis. Part of the IR's argument was that he'd changed his method of dealing to "avoid" paying tax (no sh*t Sherlock!) Obviously that argument cannot be leveled at someone who has used SBing all along. Once my friends case got to court it was thrown out in less than 30 minutes. Apparently the judge scolded the IR and they left with their tails between their legs.

In my own experience government departments (DVLA, IR etc) often overstate their powers and also make up their own 'rules' as they go along. I'm sure that many people wilt under pressure and just play ball. My own local tax office told me that someone in my area is classed as a 'Professional Gambler' and produces a profit and loss sheet like any other business. Clearly this guy is ill informed and, if it were me, I'd challenge the IR. The problem is that the only way to do that is to refuse to pay any tax! You can see the problem. My guess is that some people just pay in order to avoid the stress. I agree with you - it would be good if there were a couple of high profile cases which went to court.
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Hmmm....not if it went against the spread-better though.

This is why I am convinced it is preferable for the beginner trader to stick to spread-betting though. Stay under the radar as long as possible. If you get to the point where it is the spread-betting and not you that is the hold-up to your success, you can always think again, but if you dabble in DMA and start getting into the whole tax-return thing, they probably aren't going to leave you alone, even if you revert to spread-betting and abandon DMA. As for "you don't pay tax on the first £10k or so"...well, such things can easily change, and the CGT regime is probably going to change anyway, not to mention the whole confusion (as it seems to me) between whether your winnings are classed as income or capital gain.

I suppose the situation is also governed by whether you are trading as a sideline, and have another source of regular taxable income that you declare or is under PAYE, or whether it is your sole income source. The latter is presumably the most problematic, tax-wise, if you are a spread-better.

Of course the general tax-position over gambling and spread-betting is also subject to change, so nothing is certain for ever.
 
I agree with you on possible changes which might happen with CGT but to be honest it is hard to see the tax situation on betting changing any time soon. The government do quite well from the industry by taxing the bookmakers rather than the punters. If the rules changed then it would more than likely be a case of the extra they take with the one hand they hand back with the other.

Bear in mind also that there are now a number of pretty high profile SBing companies based in London. In the past there have been some pretty hefty donations to some of the political parties – a clear case of “you scratch my back and I’ll scratch yours” ?? I would imagine that the SBing industry as a whole would be pretty badly damaged if there was even a hint of the loss of their ‘tax free status on winnings’. Why would punters pay extra spreads with no benefit for them?

I’m pretty sure that the basis of any IR case against the ‘professional gambler’ would largely be based on ethical principle; that someone conducting themselves in such a manner by which they gain an income which they exist on should pay income tax on that money. Although I can see both sides of the argument I’m not sure that ethical principle could be used in a case which went as far as court. So long as the person in question could show that he / she was following the law then they wouldn’t have a case to answer. As far as I know there is nothing in law which states that someone must “pay” income tax – instead the law requires that someone is “assessed” for income tax – an assessment doesn’t mean that liability is always found.

Your advice is good advice imho. Stay under the radar and don’t say anything until the IR press you.
 
There are no capital or income taxes payable in UK.

That's what I've heard from a chartered accountant.
 
bedsit said:
There are no capital or income taxes payable in UK.

That's what I've heard from a chartered accountant.
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Thanks for the information. Could you get a detailed answer/argument from him/her as to why they believe it's tax free and post it here?

Everyone seems to have a different opinion and there seems to be no concensus as to the correct treatment of SB profits for tax purposes. I can only refer you to John Whitings answer and say that I presume he knows what he's talking about as he's now in charge of looking at the UK tax regulations with an eye to reducing their complexity.

However, having looked at HMRC's website I did come to the conclusion (before reading John Whitings answer) that SB profits were tax free. So I'm none the wiser now!! So it would be great if someone could DEFINITIVELY put this matter to rest one way or the other.
 
Well, that's what I've heard some time ago.

The way I see it (I'm no accountant), there are much more spread betters who are losing than winning. So if the government wanted to introduce tax on spread betting they would need to offset spread betters losses as well. In the end they would end up paying back for the losses instead of getting money from taxing spread betting companies only as it is the case now.

Also as the spread betting is classified as gambling, they would need to tax other sort of gambling, lottery etc. That would amount to a large amount in losses claimed by unsuccessful gamblers, lottery participants etc.
 
Great thread guys, thanks for all your hard work with research and reporting.
With regards to having a second taxable income to safegaurd our trading activities, would investment in property that yielded a small taxable rental income be sufficient for these purposes?
 
chrismidnite said:
Great thread guys, thanks for all your hard work with research and reporting.
With regards to having a second taxable income to safegaurd our trading activities, would investment in property that yielded a small taxable rental income be sufficient for these purposes?
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I suppose it would depend upon how much time and effort is expended in each activity and how each activity is organised. If you go back a page you'll see what John Whiting of CIOT wrote on a BBC site in relation to tax questions. It's not black and white unfortunately, but I'm sure that suits HMRC perfectly.
 
i have a letter from the head tax man on this saying sb is tax free. anything else you do that gives you any kind of income is taxable under the normal rules.

i have gone from assessed to sb only to assessed to sb only with no problems. just ring them up and tell them what you are doing. Also tell social security as with sb you don't pay any national insurance [they kept insisting they give it back to me when i kept paying it 'just in case'].
 
oiltanker said:
i have a letter from the head tax man on this saying sb is tax free. anything else you do that gives you any kind of income is taxable under the normal rules.

i have gone from assessed to sb only to assessed to sb only with no problems. just ring them up and tell them what you are doing. Also tell social security as with sb you don't pay any national insurance [they kept insisting they give it back to me when i kept paying it 'just in case'].
Click to expand...

You have a letter from HMRC saying SB is free if it's your only source of income, or a letter stating it's tax free if you have an alternative source of income? Head Tax man - from your local office or bigwig right at the top of HMRC?
 
this has been done to death, the court case which shows it is tax free is right here on hmrc's website http://www.hmrc.gov.uk/manuals/bimmanual/BIM22017.htm

''The case of Graham v Green [1925] 9TC309 concerned a man whose sole means of livelihood came from betting on horses at starting prices. Rowlatt J says at pages 313 and 314:''

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

''I think all you can say of that man ... is that he is addicted to betting.''

''There is no tax on a habit. I do not think "habitual'' or even "systematic'' fully describes what is essential in the phrase "`trade, adventure, profession or vocation''.’''

spread betting is free from tax period,

The gov get their tax through the operator. (spreadbetting firm)
 
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