Captial Gains Tax rate on CFD trading when you have no income

[new_trader]

Yes, we’ve been over this so many times.

The fact that you might be living off your spreadbetting profits does NOT deem the spreadbetting to be a trade. If you are spreadbetting alone you are not in trade. You would be if, for example, you are selling trading systems as well when your spreadbetting might be considered as part of your overall business.

Yes, I agree spread betting profits are tax free if you only profit from making bets. "Carrying on of that trade" means that you are acting as a broker and your profits arise from that trade, i.e. Commisions and losses of clients.

 

[Rainmaker]

For my ha'pennies worth -
HMRC know that most punters lose while spread betting, so it does not want to tax it as it would also have to give tax relief to losers. I don't think its about size of the profit, as the other side is that big losers ought to be given relief.
Trading inside a limited company is a dinner matter - trading is trading and subject to corporation tax.

 

[tomorton]

For my ha'pennies worth -
HMRC know that most punters lose while spread betting, so it does not want to tax it as it would also have to give tax relief to losers. I don't think its about size of the profit, as the other side is that big losers ought to be given relief.
Trading inside a limited company is a dinner matter - trading is trading and subject to corporation tax.

Exactly. My then accountant told me some years back they would love to get me classed as subject to income tax as a professional gambler / trader but they wouldn't even bother to try it. So many have tried and been rejected by HMRC because once the precedent was established, HMRC would have no way of computing the exact tax relief liability they would face from losers. The potential stock of losers is unlimited.

 

[new_trader]

So many have tried and been rejected by HMRC because once the precedent was established, HMRC would have no way of computing the exact tax relief liability they would face from losers. The potential stock of losers is unlimited.

I think it goes beyond that. One area UK gambling laws focus on is protection for children and vulnerable adults and that includes a minimum legal age for gambling and self-exclusion options for adults with gambling addiction. If HMRC were to class gambling as a profession subject to income tax it would legitimize it and create all sorts of complications with regard to laws and who they are trying to protect. Can you imagine a child saying they want to be a professional gambler just like their father.

 

[Parky]

HMRC will look to see if this is your principal source of income and this is important point. The trap many people fall into is assuming the rules apply evenly, they do not. The assumption is that Spread betting is a casual activity and is over and above the individuals job or main source of income. When the Trading, be it CFD or Spread betting, is the principal source of income then you pay tax on that income. To quote Damien Green MP who was asked about this he stated clearly that anyone who believes they can earn a living in the UK and get away with paying little or no Tax is deluded. So the tax treatment of Casual Gambling or Trading differs greatly if this is your principal source of income.

 

[malaguti]

HMRC will look to see if this is your principal source of income and this is important point. The trap many people fall into is assuming the rules apply evenly, they do not. The assumption is that Spread betting is a casual activity and is over and above the individuals job or main source of income. When the Trading, be it CFD or Spread betting, is the principal source of income then you pay tax on that income. To quote Damien Green MP who was asked about this he stated clearly that anyone who believes they can earn a living in the UK and get away with paying little or no Tax is deluded. So the tax treatment of Casual Gambling or Trading differs greatly if this is your principal source of income.

And HMRC is quoted (written down as tax law) as saying that spreadbetting is outside the scope of income tax.
i know who assesses my tax, and it sure aint Damien Green

 

[Parky]

And HMRC is quoted (written down as tax law) as saying that spreadbetting is outside the scope of income tax.
i know who assesses my tax, and it sure aint Damien Green

Which misses the point, it is not what you are doing Spreadbetting is outside, provided you do not make a living out of it. Once it becomes your principal source of income then regardless of whether you are selling marbles or flogging DVD's from the back of your car it is taxable. If you think you can make a living tax free then you are in for a shock sooner or later.

 

[malaguti]

mate, all i can do is quote and interpret HMRC

Outside the scope is very clear. The whole subject is outside the scope, only unless its part of your business.
unless you can find HMRC quoting (not an MP, or heresay or other websites) im happy to agree with you.

it doesn't state anywhere in their case law, whether it was the primary source of income

 

[Parky]

This from HMRC "Since gambling winnings are normally considered miscellaneous income for casual gamblers, they are not subject to self-employment tax. However, professional gamblers do incur self-employment tax on a gambler tax return. "

 

[malaguti]

yep, now read it in its entiirety

BIM22017 - Meaning of trade: exceptions and alternatives: betting and gambling - the professional gambler - HMRC internal manual - GOV.UK

www.gov.uk

what is the definition of a professional gambler?

Some ‘professional gamblers’ do carry on a trade, for example, where they receive appearance money for appearing on television programmes. They are providing a service to a customer (the television production company) for reward. Whether their gambling winnings are proceeds of that trade would depend upon the facts.

HMRC are very clear..

 

[Parky]

We will have to agree to disagree, different accountants, like lawyers, will tend to interpret laws differently. But of course in this, if you call it wrong or get duff advice, you will end up with a very big bill. But should the tax man come knocking I am guessing their lawyers and accountants are likely to have deeper pockets than yours. If it sounds wrong it usually is, making a living tax free? Just be careful.

 

[malaguti]

Can't disagree with you there buddy.
i used to be an accountant, have studied tax and corporate law, and consulted for HMRC

 

[barjon]

We will have to agree to disagree, different accountants, like lawyers, will tend to interpret laws differently. But of course in this, if you call it wrong or get duff advice, you will end up with a very big bill. But should the tax man come knocking I am guessing their lawyers and accountants are likely to have deeper pockets than yours. If it sounds wrong it usually is, making a living tax free? Just be careful.

malaguti is correct, parky.

we have covered this several times on here and I recall posting a photo shot of HMRC advice which said that professional gamblers were not “carrying on a trade“ even if it was their sole source of income. As malaguti says one may be regarded as carrying on a trade due to other activities, such as selling trading tips or systems, when spreadbetting profits may be considered as part of that trade income depending on individual circumstances.

 

[malaguti]

Just to add, for Parky's benefit
the gambling tax return is only for those that offer:

• betting or gaming, or both, from outside the UK to gamblers in the UK - for example, over the internet
• betting from a UK shop
• spread betting from the UK

It has to be your trade...not to be confused with what you or i might consider an individual trade (or bet)

 

[tomorton]

We will have to agree to disagree, different accountants, like lawyers, will tend to interpret laws differently. But of course in this, if you call it wrong or get duff advice, you will end up with a very big bill. But should the tax man come knocking I am guessing their lawyers and accountants are likely to have deeper pockets than yours. If it sounds wrong it usually is, making a living tax free? Just be careful.

In some respects I'd like to believe you are correct. But in such a case as this, where the administration is not absolutely clear, its always going to be possible to find tax advisors who take opposing positions.

What would amount to incontrovertible proof for me would be a decision by HMRC to tax a private retail spreadbetter. But as HMRC decisions are subject to appeal their decision would only be really final if subject to an appeal which upheld their decision.

So, Step 1 - do you know anyone who is a financial spreadbetter who has paid income tax on their gains?

 

[0FXTrader0]

Why do prop traders not spread bet then, why do they trade futures which get taxed

 

[malaguti]

I'm missing something, spreadbetting allows you to trade futures?? look at IG, you can trade futures via spread or CFD
That aside, its not the trading of futures which is what they are being taxed/not taxed on
prop traders receive a fee or commission for what they're doing. That's what they are taxed on. they are not being taxed on their gains or losses via futures or shares or other instruments
If they make a gain (not their own money) they have not technically made this gain, the prop firm has made this gain and in return they pay the prop trader. I'm not a prop trader, so im sure you can correct me if i'm wrong
they are therefore not being assessed under gains or losses, but rather assessed on standard fee income.

had they been using their own money they'd be classed as retail traders

 

[0FXTrader0]

futures pricing on exchange is a lot tighter than via spread bet or cfd...i see your point that they are using firm capital and thus not retail traders. Only HFT are going to benefit from tighter spreads as most point and click traders are swing or day traders, in early 2000's there was alot more prop trading arcades but most have disappeared probably due to advantages of being a retail guy now

 

[0FXTrader0]

The new business model is online prop firms that charge a fee before giving capital. topstepfx, blufx, plus alot more. Not sure how credible these firms are and your left with a tax liability

 

[new_trader]

This from HMRC "Since gambling winnings are normally considered miscellaneous income for casual gamblers, they are not subject to self-employment tax. However, professional gamblers do incur self-employment tax on a gambler tax return. "

Can you provide a link to the HMRC site where you copied this from? I only find it quoted in US tax law advice.