Spreadbetting & location

Visaria said:
Roguetrader, you mentioned earlier in this thread that successful spreadbettors will 'likely be taxed, just as professional gamblers are'.

Do you personally know of any pro gamblers who are taxed or read articles etc that lead you to say that?
Hi Visaria, sorry for the late reply, I only come on the boards weekends now. Unfortunately no, I do not know any pro gamblers personally. My views on them come mainly from stuff I have read from various sources over time, though nothing specifically from an IR source. Though as I said before my understanding is that there is nothing "specific" in tax law that covers these people and thus they are judged on a case by case basis. One article I read last year in a magazine was an interview with a pro poker player, when asked if he had to pay tax he said yes, but declined to be any more specific, saying that his accountants took care of that. Of course there may be many reasons why he paid tax, the only real salient point for me was the fact that although his income was derived from gambling that did not automatically exempt him.
 
there must be questions like this and many others which many traders would like answered. might be a good idea for the T2W site to put a large FAQ's section covering different topics. am sure this would be one of the questions which would be near the top.
 
Amun-Ra said:
there must be questions like this and many others which many traders would like answered. might be a good idea for the T2W site to put a large FAQ's section covering different topics. am sure this would be one of the questions which would be near the top.
Unless they employ tax specialists they probably don't want to go down that road. Those who need to know will know because they will have taken steps to get the appropriate advice
 
Gambling winnings, from gambling with your own money, in the UK are not taxed. This issue was clarified and specifically stated in the gambling bill. The poker player you read about must not be resident in the UK. As spreadbetting is currently considered to be gambling there is no threat to it's tax free status.
 
Don't know why I didn't do this before, but I met my neighbour over the weekend who happens to be a semi-retired chartered accountant running his own accountancy firm. He deals with tax matters for both individuals and small businesses and has been doing so for the last 30 years.

I asked him about the tax status of professional gamblers i.e. those whose sole income is from gambling, and specifically spreadbetting. He was quite adamant that there was no liability for taxes whatsoever and that it didn't even have to be declared to the tax authorities.

He also mentioned that he used to have a client who had a business but now is a professional poker player. The reason why he no longer has this client is because he is not eligible for any taxes on his income and so a bit pointless retaining an accountant.
 
Visaria said:
Don't know why I didn't do this before, but I met my neighbour over the weekend who happens to be a semi-retired chartered accountant running his own accountancy firm. He deals with tax matters for both individuals and small businesses and has been doing so for the last 30 years.

I asked him about the tax status of professional gamblers i.e. those whose sole income is from gambling, and specifically spreadbetting. He was quite adamant that there was no liability for taxes whatsoever and that it didn't even have to be declared to the tax authorities.

He also mentioned that he used to have a client who had a business but now is a professional poker player. The reason why he no longer has this client is because he is not eligible for any taxes on his income and so a bit pointless retaining an accountant.
Excellent, I'd be happy enough with that. As long as I had taken professional advice from someone who understood exactly what I was talking about then I would give it no further concern.
 
Hi,

There seems to be an accepted understanding that spreadbetting in the UK is outside of taxation. That is not necessarily true. There are several Tax Cases dealing with this and ther is a very fine line to be observed. Clearly, Capital Gains Tax is NOT involved but the income tax position depends solely on whether or not the spread bettin is considered PART of a trading activity (using trading in it's widest sense not just as relates to the stock market). If betting, of any sort, is undertaken by a person who has no other trading activity involving the object on which the betting takes place, then that betting would be tax free, whether or not it was substantial, regular, systematic, sole source of income. professional or amateur - PROVIDED THAT it was not "Organised". Otherwise, spreadbetting gains and losses would be taken into account for income tax purposes.

E.G. A stock market commentator who received payment (salary or commission or appearance fees) who undertook only spread betting WOULD be taxed on the spreadbetting. On the other hand, a person with no other income or pension betting 50 or more times a day, who had no other connection with the stockmarket WOULD escape taxation. If that person also made a few CFD or Futures trades the spreadbetting would also be taxable. Owning long term shares would not affect the matter as that would not constitute a trade.

Hope that helps but if any legally minded guys want chapter and verse I can provide it.
 
taxes said:
Hi,

There seems to be an accepted understanding that spreadbetting in the UK is outside of taxation. That is not necessarily true. There are several Tax Cases dealing with this and ther is a very fine line to be observed. Clearly, Capital Gains Tax is NOT involved but the income tax position depends solely on whether or not the spread bettin is considered PART of a trading activity (using trading in it's widest sense not just as relates to the stock market). If betting, of any sort, is undertaken by a person who has no other trading activity involving the object on which the betting takes place, then that betting would be tax free, whether or not it was substantial, regular, systematic, sole source of income. professional or amateur - PROVIDED THAT it was not "Organised". Otherwise, spreadbetting gains and losses would be taken into account for income tax purposes.

E.G. A stock market commentator who received payment (salary or commission or appearance fees) who undertook only spread betting WOULD be taxed on the spreadbetting. On the other hand, a person with no other income or pension betting 50 or more times a day, who had no other connection with the stockmarket WOULD escape taxation. If that person also made a few CFD or Futures trades the spreadbetting would also be taxable. Owning long term shares would not affect the matter as that would not constitute a trade.

Hope that helps but if any legally minded guys want chapter and verse I can provide it.

Agree with you Taxes (nice handle!) bar the statement 'If that person also made a few CFD or Futures trades the spreadbetting would also be taxable'. In that case, surely you would be taxable on the profits (if any) on the CFD or futures trades, but now spreadbetting would no longer be the sole source of income...???

I suppose if the CFD/futures were related to (perhaps hedging) some spreadbets then the whole shebang may be liable for tax , but if someone did a few CFD trades and then did a whole load of spreadbets, I can't see why they would be liable for tax on the spreadbets if there was no connection.

If you do have some case law, then I would interested. Please feel free to PM if you don't want to post here.
 
Taxation

Hi,

My apologies for delayed reply. My hard disk packed up and I have taken a long time to recover it's data!!!


Herewith my analysis of the precedents. I put a summary of this to the Inland Revenue in April 2006 and have not yet received a reply. I chased them two days ago and was told they are still considering their reply.


TAXATION OF SPREAD BETTING PROCEEDS.

ALL gains or losses arising from any betting activity are outside of Capital Gains Tax computation.

Gains and losses from betting activity are outside of Income Tax (but not Corporation Tax) computation provided that the individual involved is not carrying out a trade or profession involving activities associated with the activity in which the betting takes place.

The first precedent to be considered is Graham v Greene, 9 TC 309 (1925).
Graham’s sole income for many years, apart from some bank deposit interest, arose from betting on horses from his private residence, with bookmakers. It was acknowledged that he carried out the betting with shrewdness on a large, sustained scale.

It was found that “Betting” in itself lacks the organisational element of a “Trade or Profession”, unless conducted by a bookmaker of course. There is no connection between one bet and the next. In this case, there was no trade or profession being practised which could link to the betting. (In fact there was no trading activity at all.)

The second precedent is Down v Compston 21 TC 60 919370

Here, Compston was a professional golfer who regularly engaged in rounds of golf with amateurs, on a handicap basis, playing for bets of various amounts. It was held that there was no link between the placing of the bets and the profession involved (professional golfer). This takes the reasoning in Graham v Greene one step further. It would also seem to support the contention that tax free betting can be conducted from elsewhere than the home, as was the case in Graham v Greene, but that probably does not include conducting the betting from an office specifically established for the purpose of conducting the betting activities.

The next precedent is Burdge v Pyne 45 TC 320 (1968)

Burdge was the proprietor of a club which provided gambling facilities, including card games, for members. He regularly played cards with the clubs members and regularly made a profit therefrom. His winnings were the main source of profit for the club, whose other activities were not very successful. This case differed from Graham v Greene in that there was an admitted trading activity which was within the tax computation, and it was held that the betting proceeds were liable for tax because the betting was on an activity directly involved in the trade of running the club. If the club had had no gambling facilities available for patrons, then the proceeds of the betting would not have been taxable. (The fact that betting on those premises would then have been illegal has no bearing on the taxation treatment - in the U.K. U.S.A. law is slightly different.)


SUMMARY.

Provided the spread betting is carried out by an individual, either in isolation or where there is a taxable activity not connected to stock market trading or any gambling activity, then it is outside of taxation computation. The amount of the spread betting activity is immaterial, as is the amount of effort and expertise acquired or utilised. One important matter here is the precise wording of the contract between the “Better” and the market maker or broker, because any indication therein that the person making the spread bets is a professional stock market trader would be very damaging to the tax exemption case. Fortunately, for other reasons, most such contracts stipulate that you must NOT be a professional trader.

If, however, the person carrying out the spread betting conducts any other activity which might be treated as a trade or profession and which is closely associated with the stock market, then the profits and losses arising from the spread betting will be taxed.

There is a very fine line involved here. If a person trades in CFD’s or Options, then the spread betting will definitely be caught. If a person buys shares as an investment, then that is NOT trading, but if shares are bought and sold frequently to make profits therefrom other than from the dividends, then that is trading. Each person’s circumstances will be treated in isolation by the Inland Revenue. You cannot rely on someone saying they have “Cleared it with the Inspector of Taxes.” You have to know the exact circumstances.

Also, if a person makes a living from commenting on or giving advice or training on share dealing, then that person’s spread betting dealings will most likely be taxable as part of his/her professional earnings. I can find no precedent where an employed person receiving a salary for stock market related services also takes part in spread betting. I tend to the view that spread betting conducted personally by an employee of, say, a stockbroking firm, would remain tax exempt, but if the same person also received fees, outside of his employment, for services related to stockmarket trading, then spread betting would definitely be drawn into the tax net.

Finally, it would seem that spreadbetting could not be exempt from tax unless conducted by an individual. Company and partnerships would be caught.

Compiled by:
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One specific comment for Visaria.

Yes, any trading activity is within the Inland Revenue's net. So repeated CFD or option trading would clearly be caught. (Occasional such activities would be covered under Capital Gains Tax provisions). Whether or not spread betting provides the sole income of a person is irrelevent. What matters is that persons other involvement with the activity concerned with the betting. I only mentioned the sole source point to emphasise that, as it was specifically dealt with as Ratio Descendii in the first case I mention. (That means it is binding on all subsequent cases unless reversed by a higher court). I personally think that judgement is technically flawed, but until the Inland Revenue take it to the House of Lords, the precedent remains. The Inland Revenue are, of course, fully aware that the vast majority of gamblers lose money, so they don't want to allow gambling losses to be set off against other income as they would be the net losers!!!

BTW the accountant you mentioned in 2002 obviously did not research the matter! Don't automatically think that accountants are tax experts. In fact, it is impossible for any one ondividual to be a "Tax Expert". The field is far too wide for one person to encompass. You won't get even a Tax Barrister to claim he is expert in more than a small portion of the entire Tax Legislation. If accouintants are honest, they will admit this. In the reverse scenario, I would not dream of putting myself forward as an "Expert Accountant" i.e I have only a scetchy knowledge of accountancy practices, although I do my own business computations without using an accountant. (I do have arrangement with an accountant I know very well whereby I phone him if I need and he does the same to me if he has a tax problem within my expertise.)
 
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Interesting.....accountants, like any other profession, follow Pareto's law....ie 80% of them will be mediocre/incompetent......20% will know what they are talking about
 
If a person trades in CFD’s or Options, then the spread betting will definitely be caught. If a person buys shares as an investment, then that is NOT trading, but if shares are bought and sold frequently to make profits therefrom other than from the dividends, then that is trading.

Yes, any trading activity is within the Inland Revenue's net. So repeated CFD or option trading would clearly be caught. (Occasional such activities would be covered under Capital Gains Tax provisions).

You may like to check out the revenue guidance as to what constitues someone carrying on a trade if they are trading financial instruments. Just looking at frequency of transactions is too narrow to define a trade for financial instrument trading.
 
Let's say your trading activities are 99% spreadbetting and 1% CFD's

The IR would struggle to justify taxing you on 100% of your trading activities. You would have a good case for being taxed on 1%, not 100%. If that was not the case, you would have a strong argument for offsetting any losses made spreadbetting. Given that it appears that at least 90% of spreadbetters lose their accounts quite quickly (conservatively speaking), that would add up to some hefty tax rebates for the IR to pay.
 
Hmmmmmm....

was that law specifically related to those who charge very high fees to train stockmarket traders!!!!!!?
 
Pippppin

I Repeat, If you are treated as conducting a trade in CFD dealings, ALL your spread betting profits could be taxed as profits of that trade. The relative quantities are irrelevent. Conversely, if your CFD trading resulted in profits and your spread betting in losses, then you could claim those losses against ANY of your other income (trading or PAYE or whatever).


Tuffty

Frequency and result are by far the most important considerations. The operation must be commercial, i.e. with the intention of making a profit. Frequency will determine whether Capital Gains tax or Income Tax is involved. Also, understandably the Inland Revenue will direct their arguments to achieve the best taxation position from their point of view. You will argue to the contrary. Maybe I'm not clear on the point you are making.
 
taxes said:
Pippppin

I Repeat, If you are treated as conducting a trade in CFD dealings, ALL your spread betting profits could be taxed as profits of that trade. The relative quantities are irrelevent. Conversely, if your CFD trading resulted in profits and your spread betting in losses, then you could claim those losses against ANY of your other income (trading or PAYE or whatever).


Tuffty

Frequency and result are by far the most important considerations. The operation must be commercial, i.e. with the intention of making a profit. Frequency will determine whether Capital Gains tax or Income Tax is involved. Also, understandably the Inland Revenue will direct their arguments to achieve the best taxation position from their point of view. You will argue to the contrary. Maybe I'm not clear on the point you are making.

I think the CFD trades and the spreadbets would have to be somehow connected perhaps they were in the same share etc. If they were totally unrelated e.g. an oil future spreadbet and CFDs on Tesco shares, it's difficult to see how HMRC are going to say that tax is owed on the spreadbet.

I would have thought the intention is to make a profit! Spreadbetting, on its own, is gambling. Gambling is NOT a trade.
 
Visaria said:
I think the CFD trades and the spreadbets would have to be somehow connected perhaps they were in the same share etc. If they were totally unrelated e.g. an oil future spreadbet and CFDs on Tesco shares, it's difficult to see how HMRC are going to say that tax is owed on the spreadbet.

I would have thought the intention is to make a profit! Spreadbetting, on its own, is gambling. Gambling is NOT a trade.

Yes, the spreadbetting WOULD have to be connected with the trading activities, but not as closely as you suggest. The fact that they were both carried out in the same type of market (i.e. the commodities markets: the share markets; the currency markets etc.) would be sufficient.

Have a look at Tuffty's last post and reference.
 
taxes said:
Very good! I had not noticed that reference. It does seem typically Inland Revenueish in that it appears to cloud the issue rather than clear it. I am going to research the quoted cases later this week.

Many thanks.



Hi Tuffti,

I have just spoken with some senior people at both the Capital Gains and the Business Income sections of the Inland Revenue and it appears that they know very little about the mechanics of Spread Betting/CFD's/Futures. I believe that all three fulfil the requirements of being gambling transactions, but this has not been tested in the Courts. At the moment, the situation is as I set it out in an earlier post. i.e. A gambling activity is only tax free if it is carried out on an eventuality which is NOT connected with the gamblers trade and that gambling on it's own is clearly not taxable. The case referred to in the Inland Revenue manual article you supplied should be interpreted with caution, because the taxpayer was trying to get his company's short term stockmarket activities (on which it had made losses) treated as a trade so he could set off those losses against company profits. He succeeded in this.

In particular, the Inland Revenue's comment "Oliver J upheld their (The Commissioners) decision" is very misleading. If you are involved in taxation matters, you will know that the Commissioners findings in matters of fact cannot be overturned by a higher court (except where the Commmissioners' finding is considered to be "Perverse") and it was the Commissioners' decision that a trade in stock market dealing was NOT being conducted which decided the case. The number of transactions was not even considered in the appeal. In fact, references to other cases by Oliver J and his fellows clearly state that frequency and motive are important considerations.
 
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