Spreadbetting for others

[jls483]

I've got a mate, let's call him Bob, who is a succesful spreadbetter. So succesful in fact that he has a number of mates that want him to invest on their behalf and he takes a little cut. He speaks to the FSA and they say he could do it for one or two people but any more would be illegal unless he gets FSA regulation. FSA regulation is of course just out of the question (due to time and effort involved).

Would it be legal for me, sorry Bob, to instead take money as a loan with no indication of what I am going to do with it and then to give it back to them in a year or twos time plus a little extra to say thank you for the loan.

I know there are limits as to the amounts that one can gift to other people (although this relates to inheritance tax), but is there anything wrong with lending money to a friend. After all people are doing it to the labour party all the time.

Would Bob need to agree with his mates what he was doing with the money or what sort of return they might expect for their loan? Would it be wise to make some sort of contract?

Any other suggestions welcome as to how Bob might help his mates (and himself) out. Any comments as to why anybody would want to use spreadbets in the first place - not so welcome!

John.

 

[timsk]

Any other suggestions welcome as to how Bob might help his mates (and himself) out. Any comments as to why anybody would want to use spreadbets in the first place - not so welcome!
John

Hi John Bob,
Is your surname Walton by any chance?
One solution might be for your friends - sorry, Bob's friends - to open their own SB accounts in their own names and own money just like any other punter. They give you the passwords so that you can trade their accounts. I would of thought (but I don't actually know, so please check) that you would be beyond the grasp of the FSA and all gains would be tax free for your mates. The only obvious problem would be if you fell out with your friends and they refused to give you your cut or, alternatively, you blow their accounts.
Tim.

 

[jls483]

Thanks for the suggestion Tim - I don't want to magnify my work load three or four times though.

 

[jls483]

After a bit more research I'd like to split my question into two.

1. Could the FSA argue that I am spreadbetting for others by accepting loans from family members and using the cash to spreadbet?

2. Would the taxman want to charge income tax on my thank you gifts to those that leant money.

Could I add a third?

If I spreadbet with just one other person - deemed perfectly acceptable by the FSA - presumably their income is also tax free. Put another way if I go to the races and somebody gives me a fiver and I give the bookie 10 pounds. We double our money and get £20 back. I give my mate a £10 note - should he pay income tax on his £5 gain?

 

[reddragon]

Hi John,
How about telling your mates to open a small (£1 per point) account by
themselves and then you provide the trading signals via text ??

 

[Jack o'Clubs]

John / Bob,

The tax question occurred to me when reading your thread - I'm sure IR would view the income your friends were getting as taxable - the fact that you were earning it from a tax-free source would be irrelevant unless it was structured in a way that they owned the s/b accounts (but as you say, too much hassle there). After all, it's interest on a loan from their perspective.

The other thought I had on all this is that frankly the FSA is simply not going to know or care about this when it's all going smoothly. You'll be happy, your friends will be happy, end of story. The problems would start with the doomsday scenario of you blowing your friends' cash and then falling out with them over it. If you think that's unlikely think of all the business partnerships that have started as friends and have fallen out over money (my grandfather ended up in court with his best friend over just such a situation many years ago). In that case, how you structure it is largely irrelevant because a really pissed off client (as they would call themselves by this stage) could go to the FSA and say 'all this loan stuff was just a front for him investing on our behalf and we want our money back'.

Personally I would avoid this like the plague - I've had a few friends ask me to do this too and I've just said 'no thank you' - because unlike you or I, they do not understand the risks and I don't want to put our friendship under stress if it doesn't go well. If you fancy a bit more income and you're so confident in your abilities that you're prepared to risk friends' cash, wny not just up your stake size and take the money yourself?

A final thought - you could look at investment club structures as a way of doing this if you really do want to go down this route. The rules are quite strict I understand and might result in a load of additional admin, but there may be a way of getting them to 'rubber stamp' your decisions - you'd need to go through the rules for setting up a club. It might suit position trading, but is unlikely to work for day trading.

But bottom line - 'don't do it'! If you really want to share your largesse/experience/show off how good you are, why not just have an email group and send them a quick message each trade to say what you've done. Whether they follow it or not is up to them and it's at no cost to yourself.

 

[jls483]

Thanks for your helpful comments J o'C.

The Investment Club is a good idea - but I belong to one already and so I know that there is absolutely no way that one member can be renumerated for their services to the club - it all has to be done for free. So a good solution if I wasn't looking for a little something back for all the extra stress!

Your upping the stakes argument is very good. I suppose I have resisted because although I am confident in what I am doing - some part of me feels that borrowing money in order to spreadbet in larger quantities is just too much gearing for a good nights sleep.

John.

 

[reddragon]

Hi

"Your upping the stakes argument is very good. I suppose I have resisted because although I am confident in what I am doing - some part of me feels that borrowing money in order to spreadbet in larger quantities is just too much gearing for a good nights sleep."

Why do you feel that you have to borrow money in order to provide a larger
trading bank for yourself?
If your strike rate and return on capital is good then compounding your profit
will quickly enlarge your bank.
When you've aqquirred enough knowledge to be a successful trader, then it's
the same strategy you'll be using wether your trading £1 per point
or £1,000.00p per point.
Reddragon.

 

[jls483]

RedDragon,

I have to confess that I don't trade in a "normal" way. I use spreadbets as a tax free and geared form of traditional investing. I have a certain amount of capital and make a percentage return on that. If I want to make more then I have to have more capital. I'd rather the thread didn't wander into how strange I am to work this way - but instead stuck with my two questions:
1. Is it ok for me to take a gift from my mates and for me to make a larger gift back at a later date and my mate not to have to pay tax on the difference. When is a gift from one individual to another liable for tax (income or CGT)?
2. If I receive gifts from a number of mates and then use the money in my spreadbet account - could it be argued that I am providing an investment service to them?

Many thanks,

John.