Tax & spreadbetting, for full-time, sole source of income traders

[JTrader]

Hi chaps

the HMRC website clearly states that having expertise or being systematic (‘studying form’) is not enough to create a trade of being a ‘professional gambler’
&
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.

Therefore, because HMRC appear to be stating that the professional gamblers activities(e.g. a trader using financial spread-betting), is not a trade within the meaning of income tax acts, I now do not feel the need to seek further advice a tax accountant.

I understand why non-spreadbetting financial markets traders are taxed, and why this will be considered a trade - because a traders activities with an IB direct market access trading account for example, have nothing to do with betting/gambling.

 

[Vaco]

Jtrader,

As with anything new most people are sceptical whilst others dont want to change a winning formula however i dont think the spread betting firms have helped their cause with some of the underhand tactics that weve heard have been used.

As for the new breed of futures spread betting, the two companies that i am aware are part of a spreadbet firm so will have the same stigma attached.

It would be nice if anyone already using them to come forward and share their experience, good or bad.

 

[roguetrader]

I understand why non-spreadbetting financial markets traders are taxed, and why this will be considered a trade - because a traders activities with an IB direct market access trading account for example, have nothing to do with betting/gambling.

Strictly speaking, if the SB firms got their act together and allowed people the "instant" betting they claim and matched the DA spread the difference would be merely semantics, you would likely be placing your "long bet" on the SPX for exactly the same reasons I was buying it.

As for the tax issue fwiw, my own view, after a lengthy discussion with Visaria on another thread is to cautiously believe that SB are indeed exempt from tax. Though if they ever made it feasible for me to trade through them I would still have my accountant confirm that. My major concern on the tax front was two fold, firstly the law was not written with the full-time trader in mind, and going on from that how the use of the word "organised" could be interpreted in individual cases. When I sit down in fornt of my multi-monitor system with a dedicated price feed, solely for the purpose of trading (as do many others) I am left thinking that it would be difficult for me to argue that I do not make an "organised effort to profit from the markets"
At the end of the day it is up to each individual to do due dilligence on the law as it affects him/her. As it is the individual who has to live with any consequences.

 

[chump]

Rogue,
There is no argument about whether spreadbetting is tax exempt...it is. Even my discourse above was not levelled at whether it was tax free , or not ,so much as it suggested just how easy it would be to amend that status.
One of the main distinctions of spreadbetting is you actually own nothing. If you buy a stock , or a future you own something even if it is with a future invested in a 'right' to something. With spreadbetting you own nothing related to the asset you are betting on. I suspect this is what distinguishes it from trading through different instruments. That's not to say that it could not be taxed in other ways...gambling tax etc...,but currently it is not taxed at all and that is it.

 

[roguetrader]

If you buy a stock , or a future you own something even if it is with a future invested in a 'right' to something.

Hi chump, you raise an interesting point here, in that my interpretation of derrivatives such as futures and options is that you own nothing. You have the "right" but not the obligation to purchase the underlying at a point in time in the future, effectively what you own is an "agreement" much the same as what you "own" with a bet or wadger.
SB generally speaking I agree is tax free, no arguments there, my own concerns were how individual cases may be viewed. If however it is tax free regardless of how it is conducted under whatever circumstances then it achieves this by it's classification under gambling, not by what goes on, whether you own something or not, or how you do it but simply by its inclision in gambling law.

 

[stevespray]

Rogue,
There is no argument about whether spreadbetting is tax exempt...it is. Even my discourse above was not levelled at whether it was tax free , or not ,so much as it suggested just how easy it would be to amend that status.
One of the main distinctions of spreadbetting is you actually own nothing. If you buy a stock , or a future you own something even if it is with a future invested in a 'right' to something. With spreadbetting you own nothing related to the asset you are betting on. I suspect this is what distinguishes it from trading through different instruments. That's not to say that it could not be taxed in other ways...gambling tax etc...,but currently it is not taxed at all and that is it.

Technically speaking (ie from a contractual point of view) a spreadbet is a contract for the difference. If you read the various spreadbetting T&C's then you will see this point made at some length. These contracts are enforcable, by both parties, under the Markets Act of 2000. This is where a spreadbet differs from any normal bet which you might make with a bookie which is not legally enforcable. Therefore, as such, all spreadbets do have an 'asset value' at any given point in time and therefore it would seem that you can not simply say that 'you are not actually owning anything'.

Steve.

 

[chump]

Thank you very much for that Steve...a point well made.

 

[stevespray]

A few other brief points which I've made on other threads on the same subject follow. These are points which I've researched myself and as such shouldnt be considered advice but purely 'comments'.

1) When I contacted my local tax office they were quite helpful and seemed quite willing to try and answer and questions that I had on the subject. They made a number of points relating to people who my 'gamble' as their sole source of income. Firstly they informed me that there were people who lived in my tax office area that were classed as 'professional gamblers' and as such paid tax on their profits just as any other business would. Secondly they implied that the IR had the powers to examine each persons 'tax situation' on an individual basis to establish a tax liability. Thirdly they said that they generally look at peoples 'subsistence allowance'. Subsistence allowance is the amount of earnings that you would generally need to live on. If you generate this from gambling then you could quite easily be classified as a professional gambler. Fourthly, if you have a primary income and you purely speculate as a second income then there is very little that they could do tax wise. Fifthly, they said that in all cases they try to asses for tax fairly. They implied that everyone who earns a living should have to pay a percentage in tax regardless. If everyone spreadbet for a living then how would the government collect Income Tax?

2) If all winnings from betting were tax free then why dont more companies offer to do things for bets rather than charge. For example, if I owned a garage could I bet the customers £120 that could change that exhaust pipe? Would my winnings from changing the exhaust pipe be tax free because it was a bet? An extreme example I know but I hope that my point is clear - spreadbetting has just brought the financial markets into the bookmaker. Are there other ways of bringing other trades under the 'book maker' umbrella?

3) The points about 90% of people losing and only 10% of people winning are just a statistic and open to considerable interpretation. For example, the people in the 10% might bet with considerably larger stakes than the losing 90%. If you were a consistant loser you would reduce stakes while you 'learn' whilst a consistant winner would build a trading account and hence position size would increase accordingly.

4) My own personal accountant has mentioned on my tax returns that I have made quite a bit of money from spreadbetting. He feels that mentioning it is a good thing as it potentially protects me should the IR wish to investigate my complete sources of earnings.

Hope this helps,
Steve.
Steve.

 

[roguetrader]

Interesting points Steve, that was my original thinking, for those who do not fit the mould for which the tax law was written, case by case assessment. Take trading, generally speaking capital gains tax applies, until they have a close look at what you do, then they want to apply income tax.

The simple answer for each and every individual, assuming they don't have an accountant and don't want to pay one is write to the IR explaining the exact circumstances. Their advice is free.
Oddly most people shy away from this advice, as if hiding from the possibility that their worst fears may be realised and their particular situation is taxable. The subsequent theory being that if they ever do get taken to task they will simply plead ignorance. Unfortunately the IR doesn't cut a whole lot of slack for ignorance. The IR weilds a considerable amount of financial clout and will think nothing of freezing all assets and accounts until it is able to satisfy its curiosity into anyones sources of income.

 

[swissgold]

You can open an offshore bank account and trade with an offshore broker, if you don't want to pay taxes for the rest of your life, then it all comes down to your residence status and where you live.

 

[Vaco]

If you trade full time and it is your only source of income, dont you think it is a little unethical to try to avoid paying any form of tax on your income, after all its taxes that pay for so much that we use daily in our lives from schools to hospitals, roads and trains etc etc.......

 

[Jbat001]

It's a controversial point, and others may heartily disagree, but I do believe that there is a moral case for paying at least some tax on your earnings, however you go about obtaining them.

 

[Visaria]

You can open an offshore bank account and trade with an offshore broker, if you don't want to pay taxes for the rest of your life, then it all comes down to your residence status and where you live.

If you are a UK citizen, taxes are fully applicable on income/gains on offshore accounts. By law, you must declare them and pay the relevant amount of tax on your tax return.

 

[stevespray]

You can open an offshore bank account and trade with an offshore broker, if you don't want to pay taxes for the rest of your life, then it all comes down to your residence status and where you live.

Income from 'Offshore' is just as taxable as any other income. If you dont declare such income then you are committing an offence.

Most of the developed countries of the world are part of the 'reciprocal tax agreement' and as such they may share information. The basis of the agreement is that everyone should pay tax in at least one of the countries they reside in. Most of the countries have individual rules as to what represents 'resident status'. In the UK I think its something like 180 days per year or 90 continuous days. At one point I did consider trying to avoid paying CGT by having a year out and claiming non res status but they closed that little loophole.

I think that, in simple terms, if you like in the UK then you should prepare yourself to pay Income Tax on whatever your primary source of income is.

Steve.

 

[roguetrader]

I have enjoyed non-resident status from the UK in the past, the rules at that time required that you lived out of the UK for one tax year, subsequent to that in order to maintain non-residence status you could spend no more than 90 days in the UK in any year.
Offshore accounts and foreign brokers mean absolutely nothing, if you are resident in the UK then you are subject to tax reporting by law, and most likely tax payments, circumstances dependant.

 

[Jack o'Clubs]

It's a controversial point, and others may heartily disagree, but I do believe that there is a moral case for paying at least some tax on your earnings, however you go about obtaining them.

I do, I pay 17.5% VAT on almost everything I buy, I also pay a substantial wedge to my council each month for providing local services. More than half of the money I pour into my petrol tank each week also goes to HMRC in fuel duty, as does a large proportion of my expenditure on beer and wine. I also pay income tax on interest earned on the balance of my account that is in cash at any time. When I die, they will also take a sizeable sum in IHT. If I prefer to minimise my exposure to one tax in particular, and it is legal to do so, I have no moral dilemma there!

 

[Vaco]

I do, I pay 17.5% VAT on almost everything I buy, I also pay a substantial wedge to my council each month for providing local services. More than half of the money I pour into my petrol tank each week also goes to HMRC in fuel duty, as does a large proportion of my expenditure on beer and wine. I also pay income tax on interest earned on the balance of my account that is in cash at any time. When I die, they will also take a sizeable sum in IHT. If I prefer to minimise my exposure to one tax in particular, and it is legal to do so, I have no moral dilemma there!

Good point, you have won me over 😉

 

[swissgold]

Income from 'Offshore' is just as taxable as any other income. If you dont declare such income then you are committing an offence.

Most of the developed countries of the world are part of the 'reciprocal tax agreement' and as such they may share information. The basis of the agreement is that everyone should pay tax in at least one of the countries they reside in. Most of the countries have individual rules as to what represents 'resident status'. In the UK I think its something like 180 days per year or 90 continuous days. At one point I did consider trying to avoid paying CGT by having a year out and claiming non res status but they closed that little loophole.

I think that, in simple terms, if you like in the UK then you should prepare yourself to pay Income Tax on whatever your primary source of income is.

Steve.

If you cease to be both resident and ordinarily resident, you are outside the scope of UK capital gains tax, even on UK assets. There is for example no "reciprocal tax agreement" between the Bermuda island goverment and the UK. In Bermuda there is no income tax, capital gains tax, VAT, sales or use tax or wealth tax. Annual government fees are imposed on businesses and there is a payroll tax. Local businesses must be controlled by Bermudians but offshore operations take place through 'exempt' or 'permit' companies.

 

[Pippppin]

Jack o'clubs - spot on...and to take the argument further...

as a sole financial trader (or "gambler") you have none of the perks which most decent jobs have (especially those in the public sector)

ie sick pay if you don't want to or can't turn up for work, holiday pay, generous pensions which are paid by the your employer or the taxpayer, redundancy packages, private health insurance etc.

Any income tax advantages from spreadbetting or trading the markets generally are to be maximised

 

[roguetrader]

Jack o'clubs, spot on, but then that's "Rip-off Britan" for ya

Pippppin, lost on that one, none of those things have anything to do with tax, whether you have them or not is entirely up to you irrelevant of whether you pay or don't pay tax