Tax on trading, leverage in the UK, advice/opinion requested

[Leopdspots]

Hi, it feels good to be back in T2W, after nearly ten years along my journey not only into trading from home, but on bitcoin and cryptos.

I have a question about UK citizens in the UK paying CGT tax on crypto trading unless one is professionally trading, which I am not- as it is not my main job, however could be my main income by profit.. in this year. I wish to ask not about capital gains tax but tax on a type of margin trade.

In fact, what I am really trying to do is avoid CGT, and if for example one spread-bets in the UK, profit is not taxable and see and option on some exchanges

There are numerous sites these days where margin trading on cryptos is possible. As is well known also, some of the exchanges offer up to 100x leverage, with cross and isolated options too.

Re TAX.

As far as I know margin trading profits incur no tax.
Does this apply to all leverage rates, such that if one selects x1 leverage which is an option, rather than x2 or x3...or x100, is the profit made on x1 leverage margin trading any more or less a taxable event, than any other amount of leverage? Presumably it is not taxable as it is a margin trade.

This is important to me, since I am risk averse and wish to spot trade ideally, and have been on other sites doing so, but do not wish to attract CGT. So, if I use x1 leverage, logic says the profit is not taxable since this is on paper...a margin trade. Is that correct?

I appreciate your answers in advance!! Thanks

 

[Inquisitor]

What makes you think that trading on margin incurs no tax? Unless the trading is conducted through a spread betting company then any profits are liable to tax regardless of whether you made them using margin trading or otherwise. You can also offset any losses as well but the idea that trading on margin is tax free is news to me.

 

[Leopdspots]

What makes you think that trading on margin incurs no tax? Unless the trading is conducted through a spread betting company then any profits are liable to tax regardless of whether you made them using margin trading or otherwise. You can also offset any losses as well but the idea that trading on margin is tax free is news to me.

Everywhere I look on company sites there is info saying Spreadbetting in the UK incurs no tax.


My Question remains ....is x1 leverage still just like 100% leverage considered a spread-bet???


About UK tax.

HMRC will consider the following issues in assessing your personal circumstances:

• Whether you pay tax or not on the remainder of your income (if any).
• If you are liable to pay tax, which tax you pay and how much.
• Salary bracket - whether you earn more or less than GBP 50,000 annually.
• Whether you are a limited company, part of a corporation or self-employed.
• Whether you have employees and the role they play in your profit.
• Products or assets involved (CFDs of spread bets).
• Frequency and quantity of your trades.
• Duration of your trades (time between the opening and closing of positions).

For example: Independentinvestor.com/
financial-spread-betting.com

I don't know how else one would really trade by spreadbetting without being on a spreadbetting company site, so I can only presume that the exchanges I use are paying their tax where they have to. I appreciate that if one is in the UK one needs perhaps to be using UK company sites offering FOREX type spreadbetting, to take advantage of this non-taxable type of trade.

However, if I am trading outside the UK- because I may use a VPN(and why not?) or am liable to UK tax law but live and trade abroad at times, and/or there is unlikely to be compliance between the SpreadBetting company and the HMRC, so, then, it happens to fall outside of the law.

If you are trading professionally this does not apply, where you could be of-setting losses also only, if you are not Spreadbetting.

Spoiler: Basic UK Crypto Tax Guidelines

Basic UK Crypto Tax Guidelines​

Now, let's have a quick overview of the basic taxation guidelines on bitcoins and other cryptocurrencies as mandated by the HMRC. Note that most of these rules apply to individuals:

• Most crypto holders use their coins as a personal investment. They need to pay Capital Gains Tax (CGT) on their gains and losses.
• There's no need to pay taxes when buying crypto in the UK (for instance, GBP to BTC). Still, it is advised to keep records of your transactions.
• Any cryptocurrency sale makes you liable to pay CGT.
• Crypto to crypto trades, as well as crypto to stable coin trades, are subject to CGT.
• Mining as a hobby should be declared under Miscellaneous Income and shall be subjected to CGT when disposed of.
• Income from mining as a business shall be added to trading profits. You'll pay income tax and National Insurance Contribution for this.
• Cryptos gained from hard forks are not subjected to income tax.
• Airdrops gained from service must be declared under Miscellaneous Income for individuals and Trading Profits for businesses. Income tax must be paid.
• Disposed of cryptos originally received as airdrops are subjected to CGT at the time of disposal.

 

[tomorton]

The profits from personal spreadbetting are exempt from taxation by HMRC. This legal and policy position of HMRC has nothing to do with leverage.

 

[Inquisitor]

You are right that spreadbetting incurs no tax in the UK but that was not what was implied which appeared to be that trading on margin incurs no tax which is not the case.

The issue with any spreadbetting company is that you are trading against the company so it is very much in their interest for you to lose. If you are position or swing trading then that is very doable when spreadbetting but if day trading then the probability of making profits on a continual basis is almost zero. There have been many discussions on spreadbetting companies supposedly hedging all positions but this is simply not the case. They may do so with large positions being put on but they certainly don't for pretty much all other positions. In the annual report of one well known spreadbetting company a few years ago they stated that profits were down that year against budget because their customers had been more successful than was anticipated. This was considered a "statistical anomoly" and was not expected to be of concern for the future.

There was also the issue back on 15th Jan 2015 when the Swiss decided to abandon it pegging to the Euro and caused the Swiss currency to rocket in value. Hundreds of spreadbetting customers who were "short" lost so much that many had to sell houses to cover their liability. Later it was alleged that the spreadbetting companies were deliberately front running their own customers orders and stopping them be able exit positions. This alone resulted in new legislation to reign in the ability to do this in future.

The moral of the story is that spreadbetting companies are basically "Bookies" and their customers are their "Punters".

 

[MasterOfCoin]

Oh no, not again !

I thought we'd settled this.

Spread Betting in UK = No Tax.*


* unless you have 'FX' in your user name on T2W, in which case you will be taxed at Higher Rate on all gains.

 

[Leopdspots]

Oh no, not again !

I thought we'd settled this.

Spread Betting in UK = No Tax.*


* unless you have 'FX' in your user name on T2W, in which case you will be taxed at Higher Rate on all gains.

That has been clear to me, but not- if the SB company is based outside of the UK (there I am not sure)

I wanted to confirm x1 leverage or x100 leverage: it is still a trade than can be liquated and is spreadbetting all the same right?

 

[MasterOfCoin]

That has been clear to me, but not- if the SB company is based outside of the UK (there I am not sure)

I wanted to confirm x1 leverage or x100 leverage: it is still a trade than can be liquated and is spreadbetting all the same right?

Well, your Tax Status will be determined by where you are domiciled rather than where companies you deal with are based.

As long as you placing spread-bets through the appropriate facilities, I can't see why it would make the slightest difference.
Whether you leverage 0%, 10% or 10,000%, it's still leverage if placed as a leverage order, presuming any given leverage is actually available to be used for your order.

Bookmakers, after all, are not concerned with the outcome, only that you are good for the allocated leverage.

 

[Leopdspots]

That would suit my liquidity reference - theory! Thank you.

I have the option to x1 or got back to spot trading

 

[dragoncom]

Any recommendations on UK based Accountants for a Futures Trader please?

 

[LasyGroover]

Hey guys, I see it’s the right thread for my question. It also involves taxes, but property type. My wife is from the UK, but we live near Chicago, Illinois. I like this area and have a good job here. However, our house is small, and we’re looking for a mortgage for a bigger one. My wife has a house in the UK (inherited), and she constantly asks to move there

 

[LasyGroover]

Hey guys, I see it’s the right thread for my question. It also involves taxes, but property type. My wife is from the UK, but we live near Chicago, Illinois. I like this area and have a good job here. However, our house is small, and we’re looking for a mortgage for a bigger one. My wife has a house in the UK (inherited), and she constantly asks to move there

This is a huge step for me, but I am thinking about the possibility. But I need to learn more about property taxes there and other things about the UK (Cambridge, England), you know. I use the pay stub creator program to track my finances, and the numbers I see today satisfy me. However, I'm not sure I would find such a good job there. Any advice?

 

[1nvest]

This is a huge step for me, but I am thinking about the possibility. But I need to learn more about property taxes there and other things about the UK (Cambridge, England), you know. I use the pay stub creator program to track my finances, and the numbers I see today satisfy me. However, I'm not sure I would find such a good job there. Any advice?

Advice on?...you mention property taxes and then about getting a job.
wrt property tax, presumably you mean capital gains when you eventually sell it?

 

[greyskull]

Also through the subject of tax, what if you have a managed forex account, are all profits classed and taxed the same as a wage ?

 

[tomorton]

Also through the subject of tax, what if you have a managed forex account, are all profits classed and taxed the same as a wage ?

On the face of it, there is no difference in the tax treatment of profits, whether your forex trading is done personally or through a managed account.

So CFD's traded through a managed account would be subject to Capital Gains Tax, spreadbets would be tax-free.

 

[Parky]

Oh boy, there are so many opinions and threads on that. Spreadbetting is tax free BUT, if that is your principal source of income then there is a strong opinion that your income is taxable. This was fuelled by a very old and oft mentioned comment from an MP who when asked about this stated that "Anyone who thinks they can earn a living in the UK tax free is deluded".

 

[tomorton]

Oh boy, there are so many opinions and threads on that. Spreadbetting is tax free BUT, if that is your principal source of income then there is a strong opinion that your income is taxable. This was fuelled by a very old and oft mentioned comment from an MP who when asked about this stated that "Anyone who thinks they can earn a living in the UK tax free is deluded".

I'm sure the MP was correct - if you earn a living, expect to pay tax on it.

But profits from spreadbetting are tax-free regardless of other moneys gained. In any case, spreadbetting does not provide "income" or "earnings" in the sense of wage or salary or fees. This is underlined by HMRC's treatment of CFD profits, which are subject to tax, but to Capital Gains Tax, not Income Tax. So even CFD profits are not treated as earnings or income. Spreadbetting is legally treated by the CFA and other bodies as a form of CFD trading.

I can add that there has never been a reported case of any spreadbetter being charged tax on their profits.

 

[Parky]

And there is the conundrum, if your principal income is from your spreadbetting and that is paying the mortgage etc Then you are earning your living from your spreadbetting. As we agree nobody can earn a living in the Uk tax free so....
As for no reported case of a spreadbetter being charged tax, I am sure most spreadbetting is casual and by default not the traders principal source of income.
Also just because it has not happend thus far does not mean it will not happen. Tax advice on this is as varied as peoples opinions on these threads. I would tend to use the old addage that if it looks too good to be true it probably is.

 

[tomorton]

And there is the conundrum, if your principal income is from your spreadbetting and that is paying the mortgage etc Then you are earning your living from your spreadbetting. As we agree nobody can earn a living in the Uk tax free so....
As for no reported case of a spreadbetter being charged tax, I am sure most spreadbetting is casual and by default not the traders principal source of income.
Also just because it has not happend thus far does not mean it will not happen. Tax advice on this is as varied as peoples opinions on these threads. I would tend to use the old addage that if it looks too good to be true it probably is.

No. spreadbetting winnings are not counted as earnings and they are not income.

Something that is not taxable is not taxed, no matter how big it is. For example, when you sell your house it is exempt from Capital Gains Tax. It does not matter if doing this earns you a living nor how often you do it, nor how much money you make by doing it, nor if you have any other income to your name. It is not treated as income so is not subject to Income Tax and as your main place of residence it is also exempt from CGT.

 

[Trader333]

And there is the conundrum, if your principal income is from your spreadbetting and that is paying the mortgage etc

No company that offers mortgages would do so based on income gained from spreadbetting.