tax

[delsen]

Can anybody give me some insight into tax laws for traders in the UK and/or countries such as Germany and switzerland?

Thank you

 

[Jock Strap]

Very briefly for the UK for an individual trading on their own account:

Trading gains on instruments like Forex, CFDs, Futures, Shares, ETFs are subject to Capital Gains Tax on closed trades. Conversely, losses can be written off against CGT. CGT is currently payable on all gains above £10,100 in a tax year. Shares are also subject to Stamp Duty on purchase. Dividends are subject to income tax, and although basic rate is covered by the tax credit before the divi is paid out there is a further HRT liability. Also, any tax on accrued interest in an associated cash account would subject to income tax at your marginal rate.

Exceptions:
Spreadbetting is currently tax free as it is seen as gambling.
Any assets held within a trading ISA are free of CGT on disposal. However, the 10% tax credit on dividends cannot be reclaimed.
In both the above examples losses, obviously, cannot be used to reduce any CGT liability.

I think that's about it for the UK, but I've probably missed something...

 

[montmorencyt2w]

@Jock: Thanks for the very clear explanation of at least one scenario.

@OP: Unfortunately, there are others.

e.g. Have a look at this thread:

http://www.trade2win.com/boards/tax...ains-tax-rise-under-coalition-government.html

....to get a flavour.

Unfortunately, that thread, interesting though it is, peters out, as do so many.

That whole area of the forum should answer most of the questions on trading and tax, but mostly it leaves me with more questions. One reason why I stick with spread-betting, but someone will "correct" me or criticise me for saying this now.

 

[delsen]

Thanks both of you..

What is the current rate for cgt in the UK? 18%?

 

[Pazienza]

Thanks both of you..

What is the current rate for cgt in the UK? 18%?

28%. Still some things in the current tax year that might fall under the 18% rate, but 28% from now on (until they raise back in line with income tax, which has to be on the cards).

 

[andycon]

Very briefly for the UK for an individual trading on their own account:

Trading gains on instruments like Forex, CFDs, Futures, Shares, ETFs are subject to Capital Gains Tax on closed trades. Conversely, losses can be written off against CGT. CGT is currently payable on all gains above £10,100 in a tax year. Shares are also subject to Stamp Duty on purchase. Dividends are subject to income tax, and although basic rate is covered by the tax credit before the divi is paid out there is a further HRT liability. Also, any tax on accrued interest in an associated cash account would subject to income tax at your marginal rate.

Exceptions:
Spreadbetting is currently tax free as it is seen as gambling.
Any assets held within a trading ISA are free of CGT on disposal. However, the 10% tax credit on dividends cannot be reclaimed.
In both the above examples losses, obviously, cannot be used to reduce any CGT liability.

I think that's about it for the UK, but I've probably missed something...

I met a Trader that had grief of the Inland Revenue even though he was spread betting as he was very profitable and traded frequently. And had heard that it wasn't necessarily tax free. Does anyone know more about this?

 

[Mata Nui]

Not sure if its correct but i have heard that CFDs and futures are taxed via income tax not GCT as they are derivatives and you never actually hold anything of value to be taxed as a capital gain. Equities are subject to CGT, Stamp duty and Income tax (on dividends), that much i am 100% sure of. I believe spot forex is also Income tax rather than CGT.

Spreadbetting is currently free of all tax as it is classed as gambling and you pay the tax on the stake via your bookie (its in the spread) although there is a lot of discussion about this. There is rumor that some successful spreadbetters do pay income tax but i doubt the revenue would dare test such a claim in court if you did tell them to sod off.

 

[Jock Strap]

CFDs are subject to CGT. Because you do not buy shares they are not subject to Stamp Duty on purchase but derivatives can provide a capital gain (or loss) in exactly the same way as owning shares or other property. You are buying and selling the contract.

You hear stories about successful traders being classed as self employed and hence subject to income tax, but official HMRC guidelines suggest that the vast majority of individual "traders" would not even be classed as "traders" by the revenue and hence would be subject to CGT. That is why there are specific CGT rules for buy & sell transactions that take place all on the same day. The revenue distinguishes "speculation" from the wider definition of "trading".

This is what HMRC has to say:

Transactions by individuals in shares and securities are not generally trading transactions. Such transactions normally fall within the charge to Capital Gains Tax. This is also true of transactions in futures, options or other derivative contracts...

...To determine if a speculative activity is trading (or an adventure in the nature of trade), it is important to consider whether the operations are carried out in the same way as any ordinary trader in those assets operates. Established traders in shares operate to minimise, or limit, the exposure to chance. They do this in a variety of ways.

* They have customers who sell to them and buy from them regularly, to whom they market their services, and will quote prices for buying and selling. The prices quoted will be spread, so they can achieve profits. They make profits from moving huge volumes of shares very quickly.
* They hedge large holdings of a security with derivative instruments to ensure that if they hold on to positions for any length of time, they have only a limited exposure to general market movements.
* They have very strict rules about the degree of risk to which any trader is allowed to expose the firm.

So, while share traders do buy and sell shares to profit from anticipated market movements it is not the sole way in which they make a profit. Speculation is only part, and a strictly controlled part, of a more complex trading operation. Their operations are designed to make profits whichever way market prices move, by turning over stock as a wholesaler or as a retailer. Whether an individual operates in the same way as a share trader is a question of fact. So, it is necessary first of all to establish how the individual operates and what action he or she takes to minimise risk and secure profits.

The above applies even moreso when considering spreadbetting

Full Link Here

Obviously it is a complex area and tax is never black and white of course!

 

[TheBramble]

I met a Trader that had grief of the Inland Revenue even though he was spread betting as he was very profitable and traded frequently. And had heard that it wasn't necessarily tax free. Does anyone know more about this?

To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done.

HMRC will try it on if they think they can get away with it.

 

[andycon]

To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done.

HMRC will try it on if they think they can get away with it.

Hi, could you elaborate on that a little more, thanks

 

[TheBramble]

Hi, could you elaborate on that a little more, thanks

No, but I can arrange for a man who can to come and visit you and do so.

 

[traderman1]

I met a Trader that had grief of the Inland Revenue even though he was spread betting as he was very profitable and traded frequently. And had heard that it wasn't necessarily tax free. Does anyone know more about this?

If he was profitable over a number of years and had no other source of significant income, he would be classified as a professional trader. Therefore he would be taxed accordingly. Also retrospectively.
He would lose the tax free provision of the spread betting laws.

 

[reksa]

If you are profitable for a number of years can they really remove your Tax Free status for spread betting?
I have had a tough time trying to get my head around the UK tax system, the HMRC website is not really not clear enough and I have spoken to technical advisors there and been given conflicting information.
When I started out a few years back I had to pay CGT, but now I have moved totally to ISA’s and Spread betting accounts for my trading.
So really what is my status, I’m not classed as self employed, but I’m not really unemployed? I don’t need to pay any CGT.
I am not required to pay National Insurance, but i do make the voluntary payments to keep my credits up to date.
Any advice would be appreciated.

 

[TheBramble]

Ask your accountant?

If you don't have an accountant, ask HMRC.

I was quite serious when I said they will try it on if they can.

It's grey and ambiguous for a reason....

 

[reksa]

No accountant and i never seem to get anywhere with the HMRC. There must be others in the same situation as me and i would really appreciate any advice.

 

[new_trader]

No accountant and i never seem to get anywhere with the HMRC. There must be others in the same situation as me and i would really appreciate any advice.

Say that spread betting is non-professional and you will get attacked by the usual suspects within seconds. Ask about the tax situation of spread betting and....nothing....

Anyway, from previous discussions I’ve been involved with about tax, the spred betta’s of this site (There are apparently dozens of highly profitable ones, so they say) insist that you don’t pay tax on your profits, ever, and it is professional too, you'd be crazy to go DMA!

 

[traderman1]

If you are profitable for a number of years can they really remove your Tax Free status for spread betting?
.

I can assure you that if you are profitable over a number of years, 3 or more, and have no other source of significant income, you will be classified as a professional trader. And you will be taxed accordingly. Also retrospectively.

 

[new_trader]

I can assure you that if you are profitable over a number of years, 3 or more, and have no other source of significant income, you will be classified as a professional trader. And you will be taxed accordingly. Also retrospectively.

Ahh, this explains the absence. I should have known better.

 

[scose-no-doubt]

It's grey and ambiguous for a reason....

HMRC will never give advice or guidance. Ever.

I've said this countless times on these boards. HMRC CAN not WILL tax spread betting in certain circumstances.

If you're really concerned about your tax position you need to see a tax lawyer or possibly a tax specialist who is familiar with the situation. Your average accountant will not know this stuff unless s/he has a lot of spread betters on the books and only then if some of said clients have been investigated and the matter has been discussed with HMRC. Look for a professional who deals in the niche.

 

[Hoggums]

Does anyone have a reccommendation for an accountant that does have knowledge in this area and would be able to advise on tax planning.

I'm also interested to know if there are implications if you do earn a decent (unrelated) income on which you pay tax, but your SB profits exceed this income whether HMRC would come knocking, whether there's a solid basis or not.