UK Taxing on Currencies and Commodities Trading

[Nik655]

Hi everyone, I have read through many posts regarding this use and have yet to come to a definitive answer and an understanding of the tax laws with regards to trading/speculating on the financial markets. Here is my current situation:

I am trading CFDs from the UK with FXCM. My deposit with FXCM is in USD I expect to make more then 15,000 before the end of the financial year in April.

I am aware that "allegedly" Spread betting (SB) is supposed to be income tax and Capital Gains tax free, while trading CFDs you are liable to some sort of tax.

I would like to know:

1) Which tax, Capital Gains or flat out Income tax, would i be liable to pay in April if i continue to trade CFDs and what are the %s if it is only Capital Gains or if its both. ( I am aware of the brackets for income tax)

2) Is spreading betting totally free of income AND capital gains tax if it is my main and only source of income ie i withdraw money on a regular basis to live off of.

3) Is Spread Betting worthwhile doing? I have read conflicting statements that due to the increased spread it may not be worth it if you execute many trades a week. I trade with FXCM and i checked the website and do not see anything that would indicate the fact that there are wider spreads with spread betting then with CFDs. I have also spoken on the phone to FXCM who told me that there is really no difference other then the fact that it is tax free. ( but that whole conversation felt a bit sketchy for some reason)

4) I am aware of something under UK law that basically states that if you make money outside of the country you do not have to pay income tax within the UK. Not sure of the details but i have heard this.

5) Would making a offshore company and trading on behalf of that company for myself be a viable option if that company is someplace with low or no income tax?

Thank in advance!
Nik

 

[scose-no-doubt]

Hi everyone, I have read through many posts regarding this use and have yet to come to a definitive answer and an understanding of the tax laws with regards to trading/speculating on the financial markets. Here is my current situation:

I am trading CFDs from the UK with FXCM. My deposit with FXCM is in USD I expect to make more then 15,000 before the end of the financial year in April.

I am aware that "allegedly" Spread betting (SB) is supposed to be income tax and Capital Gains tax free, while trading CFDs you are liable to some sort of tax.

I would like to know:

1) Which tax, Capital Gains or flat out Income tax, would i be liable to pay in April if i continue to trade CFDs and what are the %s if it is only Capital Gains or if its both. ( I am aware of the brackets for income tax)

You'll pay capital gains tax if your CFD earnings exceed GBP10,100 18% basic rate 28% higher rate

2) Is spreading betting totally free of income AND capital gains tax if it is my main and only source of income ie i withdraw money on a regular basis to live off of.

Apparently so, according to precedent (if you believe what's thrown around the boards). Personally, I think it's potentially challengable by HMRC but that neither here nor there in terms of whether there would be any liability.

3) Is Spread Betting worthwhile doing? I have read conflicting statements that due to the increased spread it may not be worth it if you execute many trades a week. I trade with FXCM and i checked the website and do not see anything that would indicate the fact that there are wider spreads with spread betting then with CFDs. I have also spoken on the phone to FXCM who told me that there is really no difference other then the fact that it is tax free. ( but that whole conversation felt a bit sketchy for some reason)

Horses for courses. Probably depends how you trade but people definitely use SB firms to trade massive size so I'd be hard pressed to believe that the wisdom of the HNW crowd is utter ball sacks

4) I am aware of something under UK law that basically states that if you make money outside of the country you do not have to pay income tax within the UK. Not sure of the details but i have heard this.

If you're UK domiciled and resident you pay UK tax on all worldwide income* but you'll get DT relief for anything suffered at source.

*For all intents and purposes and without really complicating matters.

5) Would making a offshore company and trading on behalf of that company for myself be a viable option if that company is someplace with low or no income tax?

Not unless you're making quite a bit. You're going to be looking at initial set up costs of a few K then another few bags annually for administration. Then (IMO) you'd need to get a second opinion on whether the regulatory side is water-tight which will set you back a bit.

Thank in advance!
Nik

Can you teach me how to Dougie?

That's as far as I'm going. You need to review other options which are available to you and you should go see an accountant that specialises. Speaking from experience, you won't get bookies that know anything about trading in the majority of offices.

 

[Nik655]

Thanks for the reply!

So if i continue trading CFDs i would only pay the Capital Gains tax at 18 or 28% and would not have to pay any income tax. If i make 150,000+ i would still only pay Capital Gains at 28% and not the income tax at 50%?

What are the amounts that i need to be making to get taxed the higher band of 28%?

Do you know any accountants who specialize in working with traders and know the inns and outs of the taxing schemes? Preferably in or around the London area.

Does anyone do Spreading betting after having done CFDs and can explain to me the actual differences and if it affected their profitability?

 

[scose-no-doubt]

Thanks for the reply!

So if i continue trading CFDs i would only pay the Capital Gains tax at 18 or 28% and would not have to pay any income tax. If i make 150,000+ i would still only pay Capital Gains at 28% and not the income tax at 50%?

Personal Allowance 7475 + Basic Rate Band 37400 = 44875

So if you have other income you subtract that from 44875 and and you'll have what's left of your 18% band. The rest will be at 28%



What are the amounts that i need to be making to get taxed the higher band of 28%?

Yip 28% all the way.

Do you know any accountants who specialize in working with traders and know the inns and outs of the taxing schemes? Preferably in or around the London area.

No idea. Maybe call up a prop firm or two. I'm sure they'll get a kick back for recommending their guys so maybe they'll be forthcoming

Does anyone do Spreading betting after having done CFDs and can explain to me the actual differences and if it affected their profitability?

Teach me how to Dougie then?

 

[Nik655]

I'm still a bit confused about CGT and Income tax. Can you go into a bit more detail? If trading CFDs is my only source of income and lets say i made 50,000 in a year only from trading CFDs. I would be liable to pay CGT on this income above 10,100 (or w/e the CGT allowance is) at 18% and anything above 45,000 after the allowance is taxed at 28%? But i would not be liable to pay any income tax at any of the higher income tax rates( which go up to 50% after 150,000) So if i make 200,000 in a year i would be liable to pay 18% on the first 45K and then 28% on the rest of the 155,000?

Lol i cannot teach you to Dougie because i myself do not know how.

 

[scose-no-doubt]

Corrrrecto!

 

[Nik655]

Hmmm ok thats not TOO bad. Perhaps i will need to look into doing some sort of offshore company in a tax haven to see of its viable and if i can avoid paying up. 28% is not as bad as 50, but in my opinion paying anything more then 15% on money you make is ridiculous.

Thanks for your help, i guess in the New Year ill be looking for a competent accountant or a tax lawyer... or both

 

[gdr3k]

Are you only liable to pay tax on it if you transfer it to your UK bank account?

 

[Nik655]

I think that depends highly on which bank and in which country. It is perhaps possible to transfer to another bank that does not have any agreements with the UK to release any information about it's account holders and thus cannot be taken into account by the HMRC when calculating how much money you owe them.

I believe this would be void if you hold a trading account in the UK as i believe they would be responsible to report how much money people make to the HMRC, but im not sure on that one. Maybe someone who knows can confirm or correct me.