UK tax issues

[Ende]

What is the best thing to do until we got $25K?

I was thinking about to register at IB and start day trading in the UK but the stamp tax of 0.5% on purchases is way too high in my opinion. say if I were to buy an equity with a net worth of 20k pounds, 100pounds just for tax is considerably high and is essentially ruining all the possibility of profiting from that trade. But if I simply move to the US and trade from there, I would have 3.5 times lower comission, won't I? instead of paying 0.1+0.1(comission on liquidating)+0.5(stamp tax), I would pay only 0.2% of comissions in the US. it is meaningless to pay such high tax on purchases of something i'm not buying to hold, but just to sell it few moments later.

i would like to know your opinions on that issue. Why on earth do you guys do day-trading from the UK??

 

[theknifemac]

I was thinking about to register at IB and start day trading in the UK but the stamp tax of 0.5% on purchases is way too high in my opinion. say if I were to buy an equity with a net worth of 20k pounds, 100pounds just for tax is considerably high and is essentially ruining all the possibility of profiting from that trade. But if I simply move to the US and trade from there, I would have 3.5 times lower comission, won't I? instead of paying 0.1+0.1(comission on liquidating)+0.5(stamp tax), I would pay only 0.2% of comissions in the US. it is meaningless to pay such high tax on purchases of something i'm not buying to hold, but just to sell it few moments later.

i would like to know your opinions on that issue. Why on earth do you guys do day-trading from the UK??

Ende a lot of UK based daytraders are trading US stocks rather than UK ones, to avoid stamp duty (only applicable to UK shares) and to take advantage of lower commissions and higher volatility / greater liquidity in the US markets.

Stew

 

[Ende]

Thanks Stew, for your quick and nice reply. I thought the stamp tax was applicable on all shares routed through UK brokerages. that's a nice news indeed. but for the UK, they are simply blocking "day trading" practice on it's Stock exchanges with the stamp tax payable on stock purchases i think. i recall somewhere i read that day trading does an important role on market liquidity(which you told being a major factor to attract foreign investors) and overall stability. I see no reason for the UK government to apply such tax on *something we're not buying for good* do you?

 

[Ende]

Hey and sorry about my ignorance guys, but i have few more question to ask
I got a feeling that "Interactive Brokers" has proven to be one of the very best brokerages for UK day-traders because of it's low comissions and reliable service. But, being an individual who's new to investing into foreign markets and mechanics of IB's stock trading scheme, I'm just wondering if I have to have 2 separate accounts of GBP and USD in order to trade on both Nasdaq and LSE?

if i don't, i suppose we need USD to purchase anything from the States including securities on Nasdaq and GBP to purchase a stuff from GB. so is it like my pounds gonna be converted into dollars just before the order to buy shares from Nasdaq being fulfilled? if so, on which rate?

the reason i'm asking is that i'm not too keen to buy USD for GBP which i currently have because of the article i read from Financial Times with a scary headline like "US dollar continues to fall" or smth like that hee hee. simply put, Stew, would you please be so kind and tell me that when you're refering "a lot of UK based daytraders are trading US stocks rather than UK ones", you meant that these guys all have USD account and don't trade on LSE at all, or do they allowed to have separate account for each different countries' Exchanges, or do they have their pounds be converted to USD everytime they trade on US markets(or vice versa on LSE)?

thanks a lot

 

[theknifemac]

Thanks Stew, for your quick and nice reply. I thought the stamp tax was applicable on all shares routed through UK brokerages. that's a nice news indeed. but for the UK, they are simply blocking "day trading" practice on it's Stock exchanges with the stamp tax payable on stock purchases i think. i recall somewhere i read that day trading does an important role on market liquidity(which you told being a major factor to attract foreign investors) and overall stability. I see no reason for the UK government to apply such tax on *something we're not buying for good* do you?

I see no reason either, but our good friend Mr Brown sees many reasons, all with the Queens head printed on them ! There are often rumours that stamp tax will be finally abolished as it pees off the big city institutions even more than it does to us, but the revenue from it is too big to ignore. Though some might say the continued existence of stamp tax and the increase in the use of CFDs in the UK market are not completely coincidental. I have seen quotes saying a high percentage of trades in the UK are now driven by CFDs.

Stew

 

[theknifemac]

Hey and sorry about my ignorance guys, but i have few more question to ask
I got a feeling that "Interactive Brokers" has proven to be one of the very best brokerages for UK day-traders because of it's low comissions and reliable service. But, being an individual who's new to investing into foreign markets and mechanics of IB's stock trading scheme, I'm just wondering if I have to have 2 separate accounts of GBP and USD in order to trade on both Nasdaq and LSE?

if i don't, i suppose we need USD to purchase anything from the States including securities on Nasdaq and GBP to purchase a stuff from GB. so is it like my pounds gonna be converted into dollars just before the order to buy shares from Nasdaq being fulfilled? if so, on which rate?

the reason i'm asking is that i'm not too keen to buy USD for GBP which i currently have because of the article i read from Financial Times with a scary headline like "US dollar continues to fall" or smth like that hee hee. simply put, Stew, would you please be so kind and tell me that when you're refering "a lot of UK based daytraders are trading US stocks rather than UK ones", you meant that these guys all have USD account and don't trade on LSE at all, or do they allowed to have separate account for each different countries' Exchanges, or do they have their pounds be converted to USD everytime they trade on US markets(or vice versa on LSE)?

thanks a lot

Ende

You can do it either way. Most people have a GBP account with IB then when they trade US stocks the necessary conversion happens at the current FX rate, the trader does nothing. Then the same thing happens when the position is sold. Somewhat quirkily you are left with a GBP balance (your original opening amount) plus any P&L from the trade in USD. Then you can do a FX trade in IB to exchange your USD profits into sterling before withdrawing the amount (or partial) and then painting your local town red.

The dollar is very weak as you say right now and that is likely to continue IMHO as it suits the US to have a weak currency right now despite what Mr Snow says in public. For us UK based traders this is a good thing as it means the amount we need in our account to meet the PDT (pattern day trader) rules is less in pounds than it used to be - you need to have $25K before you can effectively day trade. This is not an IB thing it is imposed by the SEC / US Government.
It does mean that the value of USD based profit may decrease over time, but it seems a small price to pay, and having any profit is a lot better than many people seem to manage.

There are other threads covering how a GBP IB account works.

http://www.trade2win.com/boards/showthread.php?t=11326&highlight=IB+GBP+account
http://www.trade2win.com/boards/showthread.php?t=10056&highlight=IB+GBP+account

As Paul / Trader333 says, it is easy and inexpensive to convert your USD profits into GBP when you need to. And this arrangement means your initial account balance is not going to be affected by any FX rates (unless you funded it close to the bone and cable went against you meaning you no longer had the minimum $25K worth of GBP in your account).

Cheers

Stew

 

[Ende]

thanks a lot Stew. you're a really nice person. As I see, you even did the search for me! Really friendly forum this is I think.

Stew, you seem to have much experience in investing field. So I have one more question from you. Let's say you were very interested in actively participating in the investment world and found day trading can suit to you well but you haven't had 25.000USD. If that were the case now, which kind of way would you choose? grab a book about futures trading and start trading eminis? read about CBOT and buy some coffee futures? or are you gonna swing trade? or would you start trading options based on your knowledge about stock market and it's mechanics? or would you go to some jamaican offshore broker and start trading from there? or will you do your regular job until you accumulate the needed 25k? i would like to ask this question from everyone kind enough to answer

thx in advance friends

 

[Roberto]

i would like to ask this question from everyone kind enough to answer

Well, it's sort of a rather theoretical question, in a sense. The sense is that you're asking us to assume that day-trading suits us well without knowing what instrument(s) we want to trade. Still, for what it's worth, what I'd do (and this will be the only opinion to this effect so you might as well get it out of the way early!) I'd do spreadbetting, thus neatly avoiding stamp duty, CGT and income tax. But others with prejudices, out-of-date information and strange beliefs - - will tell you that this is madness because of "how wide the spreads are" and a whole variety of other reasons, usually very forcefully expressed, with which I don't agree.

 

[Ende]

Hi Roberto. thx for your reply. So you believe that you can raise your fund up to your needed 25K level by spread betting? Then the spread betting method got 1 point now.

Theory of my question is simply about the best thing to do until the people of low income and a bold head dare enough to think of involving the day-trading activity get the chance to day trade(hit 25K in other words).

thx again for your reply

 

[Roberto]

To be fair, it's not quite as simple as that, because as I mentioned, it depends what instrument(s) you want to trade. Some (like indices and forex) are far more suitable than others for spreadbetting. If you're looking at dealing in individual shares then others' replies will be more helpful to you than mine. Good luck, and take care.

 

[theknifemac]

Ende

I guess a lot depends on how long you think it would take to save the $25K you need from your full time job (if you have one). If you have decided day trading works for you, do you think your approach will work on a longer time frame or do you need to work out a new approach for swing trading ? Spread betting is one approach, but it is unclear if you can apply the same techniques i.e. daytrading on individual shares while dealing with the spreads etc.

I assume you want to daytrade individual stocks eventually otherwise the $25K does not apply (i.e. not applicable for futures or forex).

Do you already have a method worked out for daytrading or is it simply something you are interested in ? Starting out without a solid plan will probably ensure that you quickly lose the $25K anyway !

Stew

 

[roguetrader]

Hi Ende,
You seem to have a very level headed approach to this, hold on tightly to that, it will serve you well. Keeping a job, gauranteeing you steady income is definitely a good idea, particularly at this stage of your exploration. Spreadbetting, I know nothing about so I certainly wouldn't set about contradicting anyone on its usefulness. Given your situation as I see it from what you have written here, you might want to consider swing trading. This would give you the flexibility to work and trade. I would avoid focusing on a cash target as it will cloud your judgement and likely work against you. I would also point out here with little fear of contradiction that although the letter of the law says you need $25,000 to pattern daytrade, you would be well advised to have a considerable amount over that to allow yourself margin for error, learning money as it were. . Requirement for pattern daytrading accounts are that they are maintained with a minimum of $25,000 at all times.