uk tax laws on forex

N Rothschild said:

you need to make money in order to be taxed

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stevespray said:

Sod the accountant - it's pretty darn simple....

If you speculate on forex (non spreadbet) and make money then you can be taxed on that in the form of CGT. You do however have a £10,000 personal allowance so you only get taxed on profits over £10k in any one tax year. This scenario assumes that your speculation on forex is not your sole source of income and that you pay some Income Tax via a job of some kind.

If forex trading became your sole income then the IR will most likely look at your situation differently. In that situation you would be better off registering as a self employed financial trader. You would then just produce a profit and loss account just as you would for any business which you were running. This is very simple and you'd be classed as a 'Sole Tradership'. This would allow you to make significant deductions for expenses like a room in your house for use as an office as well as computer equipment, software, data fees, electricity and internet fees. You would then be assessed for Income Tax on your net profits.

Personally I'd suggest spreadbetting as a consideration. I'm no expert (on tax advice) but I know a hell of a lot of successful traders who make large sums spreadbetting and pay no tax whatsoever. Most of the spreadbetting firms now offer very tight spreads on the major crosses and in my experience you'd be hard pressed to get the same leg in / leg out spreads with direct access platforms especially in fast markets. You can certainly control risk to a higher degree with the firms which offer the best stop loss filling policies in fast markets.

How much are you planning on making and will this be your sole income?

Hope this helps,

Steve.

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Representative said:

Hello everyone,

I also have a question about the tax laws in the UK regarding forex.
I am a Dutch student resident in the UK. I still hold my Dutch passport, but mostly live in the UK (at least 10 out of 12 months). I will be starting in forex trading somewhere this summer. I was wondering whether or not it is of interest for a student to register as self employed trader? Or should I wait until I make at least 10,000 pounds and more?

Thanks very much,

Rep

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stevespray said:

Firstly I should say that I am no tax expert but here is what I would suggest...

If you are resident in the UK then open a Spreadbet account. If you make some money buy a few more books (on trading perhaps) and maintain your student status whilst continuing to spreadbet. Don't register with the IR as anything. In fact dont even contact them. Chances are you will get under the radar. If they do happen to come knocking then tell them that you are still a student. As you are from the EU there isnt much they can do as you have the right to be here. You're more likely to be asked questions by the the tax authority from your own country - obviously you would just tell them that you are still studying abroad.

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Representative said:

Thanks steve!

Why should I go for spread betting and not with a forex broker (like fxcm)? I understand these are 2 different things.

Many thanks,

Niels

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Scotty2Cues said:

genius.

but do i need to make money before getting a yes or no answer to the question :

Is Forex subject to CGT?

and if not, what is the answer?

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stevespray said:

Apparently HMRC are interested in spreadbetting – that’s straight from the mouth of a senior tax inspector at my local tax office down here in sunny Bristol.

What they’re not interested in is folk who just ‘speculate’ as an aside to their main income. They may however be interested in someone who trades full time via spreadbetting. The HMRC say that they have the ability to look at situations on a case by case basis. Reading between the lines I take that to mean that they might attempt to nail you for income tax if i) you are profitable, and ii) if it’s your sole source of income. I’m not aware of a case where they’ve taken court action to actually do this but the tax inspector did tell me that someone in my tax area was registered with them as a ‘professional gambler’ and that this person submitted accounts and paid tax like ‘any other profitable business’. It made me wonder if this person had come to an arrangement with HMRC rather than fighting the case.

The problem for most people who might go into full time spreadbetting is that they probably already have a full time occupation where Income Tax is being paid. Let’s say that Mr Average does a job which pays just over £40,000 per year and, on that basis, he pays around £10,000 in NI and Income Tax all via the PAYE system or by Self Assessment if he is self employed. Sooner or later, once he stops paying any form of direct tax, HMRC will want to know what his current tax status is simply because he is already on their system. This is where the problems could start. HMRC are unlikely to simply accept that Mr Average is now exempt from paying Income Tax (especially if he’s now punting around town in a Bentley Continental GT!)


Steve.

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