Stamp duty to be imposed on CFDs?

[in2uxs]

I was reading an article last night stating how much the lovely chancellor is now losing on stamp duty owing to the rapid increase of CFD trading. The cries from the city and investors has been for some time to abolish stamp duty on shares altogether, but concerns reign that the chancellor will not abolish stamp duty on shares, but is more likely to impose stamp duty on CFD’s. I understand that this has already been done in Ireland.

I was giving this stamp duty question some thought last night, and to be honest was thinking of ways to get around it should the chancellor impose such a tax. One way I thought would be to trade in non UK listed companies, another is to spread bet, but then I wondered how it would work if you held a CFD account in an overseas tax haven country. If you held such an account, and brought a CFD in a UK listed company would you still be charged stamp duty?

A CFD contract is surely little more than a computer generated form that can be generated in space if need be. Therefore, I personally don't see how buying a CFD from an overseas company would subject us to UK stamp duty? What are your thoughts?

 

[stevespray]

I can not see such a tax happening. Surely it would be history repeating itself in the same manner that betting firms we forced offshore. If the tax came about then the companies would just relocate. It would be very hard for the government to close all the potential loopholes.

Steve.

 

[Jack o'Clubs]

Quite right. It's very difficult to see how he would tax a non-listed derivative, which as you say could be issued anywhere. He could try and nab UK domiciled investors for tax by putting the burden on the investor to declare CFD stamp duty in their annual returns, instead of it being payable on execution as is the case on shares now. But the institutional CFD users would just go offshore and he would only get some dribs and drabs from UK personal investors/traders. Sounds like it'll probably go onto the 'too difficult' pile, and it doesn't sit very comfortably with the recent noises Gordo has been making trying to woo the City ahead of his probable premiership.

 

[coolTrader]

Ah! Anything is possible with Mr Brown. Don't for once take it for granted.They may turn round and say well it is for your benefit that we tax you so you can fund more companies this will then boost company formation comapany listing and guess what you get to trade more companies.. hehe.

Tax on co2 , tax on mileage tax for going through the city, tax for excess bin, tax for travelling tax tax tax tax....

Tax on air will be next!

 

[in2uxs]

I agree that taxing CFD’s would be a hard thing to do, but since when has logic been at the heart of any Government. My person belief is that if Gordon is left to his own devices then been a typical hard left kinda guy he will impose stamp duty on CFD’s due to his own ideological reasons rather than practical ones.

The thing is if Gordon in his ultimate wisdom does decide to follow his ideology and screw us all by imposing a stamp duty on CFD’s to all UK residents then he can wave goodbye to 99% of all traders making more than a decent wage as they all relocate to more affordable houses in sunnier climes. The rest of us will just switch to spread betting which will reduce his tax income even further. But still … taxing the “rich” sounds good when he’s trying to woo the unemployable.

The one thing that I do congratulate the Labour party on is the speed in which they moved regarding the tax breaks for gambling firms. However, I still believe this is more to do with the Labour party’s belief that gambling is a working class activity and as such deserves support from the government. Spread betting is basically share trading, but the word alone conjures up thoughts of a working class activity that only poor people play therefore spread betting is tax exempt and share trading gets screwed from all angles.

Personally, I do think all political parties are facing serious future problems. All developed countries rely very heavily on the financial sector for wealth generation yet it is this very sector which is most easy to re-locate. Although it is very handy to pop into you local branch of Barclays to ask for a loan it is becoming now just as easy to submit a loan application via the internet to any bank in the world. The thing is with such borderless transactions so easy to do why should a bank or other financial institution feel they should stay in a country and pay high costs when they can exist somewhere else. Party gaming I suggest is in Gibraltar owing to tax breaks not for their love of monkies.

The city has long argued that London faces unfair competition owing to the stamp duty issue, but in the days before electronic online trading there was nothing they could really do about it. However, now that the internet has come along and people can buy and sell shares from any bourse in the world without ever seeing a scrap of paper then it is not beyond possibility that a greedy chancellor could end up causing many UK registered companies to register on overseas bourses.

Given the globalisation of everything nowadays governments can no longer be overly arrogant when it comes to taxation. Any postable item now can be brought by the individual just as easily from China via the internet as it is getting it from Dixons. The fact is that many retail companies starting up now know full well that times they’ve paid business rates, high employee wages, sick pay, stamp, etc etc, and times a customer has paid £5 a gallon petrol, £2.00 an hour parking in order to get to the shop in the first place then they realise its cheaper for them to have a business abroad and sell worldwide via the internet. Shopping has already seen massive changes thanks to the internet. Gambling has seen major changes owing to the nature of the beast. Share trading has seen changes, but I fully expect to see a lot more especially if we have an unsympathetic government.

 

[stevespray]

As I already mentioned, I feel its a total non starter. JoC's comments regarding placing the buck via the tax return would seem to be the only workable method and this way the tax would become a domicile issue relating to the client rather than a tax burden facing the CFD's providor. Surely a more sensible and indeed cost effective method would be to edge the rate of CGT higher. The 'benefits' to the government would then be three fold - firstly only folk making money would pay and, secondly, the CFD companies would be uneffected with regard to geographical location which obviously isnt the case with a stamp duty which has to be charged with each effective transaction. Thirdly, the proceedures for the collection of CGT are already in place within the tax return. A change of percentage payable wouldnt cause any change in workload for the IR, the government simply collects more money (which is ultimately the idea). The downside is of course that it wouldn't be such a stealth tax, a rise in CGT would simply be an obvious rise in taxation which would leave the government open to such abuse which follows such events.

Steve.

 

[Jack o'Clubs]

I was just reading about the situation in Ireland, and apparently what they have done is not impose a stamp duty on CFDs, but taken away some of the exemptions under which brokers did not pay stamp duty when buying the underlying shares to hedge their CFD positions. Therefore the costs to brokers of writing CFDs has increased, and consequently they've needed to consider if/how they pass those costs on to the end-user.

Apparently Irish brokers were claiming that shares bought to cover CFD positions were exempt under market maker and broker/dealer reliefs, the Irish revenue has said that they're not... That might be where Gordo is aiming his fire...

 

[Trader333]

The way to get around this is dont trade UK stocks and trade US stocks instead.


Paul

 

[in2uxs]

I can see the big Scottish baboon going down this route in all honesty, and that would in affect create a water tight tax on CFD’s that no-one can escape from. If such a tax was imposed then the knock on affect would be that spread betting would also incur the tax albeit in a round about way.

Then again unlike shares where you buy a product and the government wants a cut CFD’s are merely contracts that are exchanged between parties. I would imagine large CFD brokers by and large just act as intermediate in matching client A’s contract to client B’s – for example if I buy a contract thinking Tesco are to go up law of averages would state that someone else is selling such a contract thinking they will go down. At the end of the day a CFD company only has to hedge against any imbalances, and as such should such a tax be levied then we may not experience the full affect of it.

 

[coolTrader]

Just read this. Anything is possible. Who will complain... Or should I say if anyone complains who will listen?

http://www.dailyreckoning.com/Media/PR110206.html