Taxing question of tax on forex

[philbie]

Hi everyone I've just signed up for a demo account with FXCM and have done their basic trading course with some success on trading trends.
But I have a real issue with tax. FXCM will not let me sign up as a company, only as an individual, which of course will attract 40% tax. I've heard elsewhere that if you do spreadbetting, you are not liable for tax. However the one spreadbetting forex site I have seen makes it clear that you will be liable for losses beyond your margin - which doesn't appeal to me at all - wonder why anyone would sign up for that!
Does anyone have any advice re tax or can recommend a good forex tax accountant?

 

[ns1000]

You'll be liable for losses beyond your initial deposit with pretty much anyone. If a firm guarantees no recourse beyond initial deposit, they're going to be very aggressive on close outs. CGT should be 18%, rather than 40% if you're based in the UK.

 

[philbie]

thanks

You'll be liable for losses beyond your initial deposit with pretty much anyone. If a firm guarantees no recourse beyond initial deposit, they're going to be very aggressive on close outs. CGT should be 18%, rather than 40% if you're based in the UK.

thanks for this, so is individual tax going to be the CGT rate not income tax rate?

 

[ns1000]

thanks for this, so is individual tax going to be the CGT rate not income tax rate?

Should be, although it will depend on your own circumstances.

 

[timetotrade]

Hi Philbie

Your tax liability will depend on whether HMRC class you as a "trader" or "investor". As a trader you will be subject to Income Tax, as an investor to Capital Gains Tax.

You are allowed to make upto £9,600 in Capital Gains this tax year without being subject to Capital Gains Tax, and as ns100 has said, any gains above that are subject to CGT at 18% - so for most folk it is generally preferrable to have "investor" status.

Your idea of "trader" is not the same as HMRC's idea of a "trader"

HMRC will look for "badges of trade" to determine which category you fall into and there are some very useful guides on the HMRC website:
Trade: badges of trade: contents
Trade: badges of trade: income producing assets

Quote:
"Normally transactions by individuals and companies in financial assets, such as shares, options and futures, do not amount to trading for tax purposes. Shares are generally held for investment, either to gain from income or capital growth. Short-term transactions, which cannot be classed as investments, usually fall short of trading, being in a class of transaction analogous to gambling or speculation. If you have a case of this kind please refer to BIM65701"

Obviously everyone's circumstances are very different and if you are in any doubt of your status or how best to manage your taxes you should seek advice from an accountant.

Oh, and you are correct, spreadbetting is not currently subject to either income or capital gains tax at this time.

Hope that helps.

timetotrade
timetotrade.co.uk