The CEO of City Index is interviewed in today's Telegraph under the headline 'Betting? No, it's just trading'.
'City Index chief insists his operation is nothing like a bookie's. It's just taking advantage of a tax anomaly...' is the lead-in to the article.
Very bright. Why didn't he just write to the Treasury and tell them that his industry is just playing off a tax anomaly, please could you shut the loophole, Mr Brown?
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/05/14/ccprof14.xml
Speechless. Absolutely speechless. I can see his dillemma - "betting" is seedy to a large percentage of the SB / CFD / DA trading market. Not my personal opinion, but most kinds of "betting" are seen to be a tax on the poor and working class.
Call it trading and you legitimise your business in the eyes of the middle classes. You attract more new clients. Read the reports of IG, CMC, and others and you will see that new client retention is a major strategic objective. Since most clients blow their accounts and no longer trade (again, I don't have any empirical evidence of this, but it seems common sense), it is important to attract, and if possible retain as many new clients as possible.
However, when compared to close substitutes in this market, the only unique selling point of SB is the tax advantages. CFDs have similar spreads, and cover the same instruments, but it has to go through CGT. If SB was taxed, the market would all but disappear - you can't offset losses and gains with SB.
The only punters that the SB shops would have if they were taxed similar to CFDs would be the punters who just meet the financial requirements for a limited risk deposit account with a bucketshop, but fall short of the slightly higher credit requirements to trade CFDs. For example, I've not seen a CFD broker who would allow a client to open an account with £500 and no proof of income, but FinSpreads would give you an account and let you trade at £0.50pp.
I appreciate that this chap is attempting to make the product more appealing to the middle class traditional buy and hold investor, but calling it a tax shelter under a Labour government which has tried to remove every tax shelter known to man and then add a couple of dozen new stealth taxes is literally unbelievable. I actually read the article for context! Seems the grandparent has the right end of the stick.
I'm a small account, and the minute I have to pay income tax on my SB profits is the same minute I incorporate and trade real futures, with 1 point spread, less commission, and the same leverage.
SB firms have a good thing going. I hope Mr Cooke knows what the hell he is doing!
Oh, one more thing. This sort of comment will not even be noticed by high level government officials.
But the HMRC will use it as evidence in any tax assessment! It would be pretty convincing evidence before the Commissioners.
Bearing in mind that the literature of
every SB shop emphasises the tax status of SB, they should be worried. They do have the disclaimer that Tax Law is subject to change. However, if I were to be taxed on SB profits, and the tax law (statute law) had not changed, and the SB firms in question were still selling this as tax free...well you can guess the result.
I am sure most people would pay the tax they had been ordered to pay, and then sue the **** out of the SB firm for the tax amount, plus legal fees in both actions. Even if no compensation was awarded at law, I am sure the FSA would take an extremely dim view! There are (naturally) very strict rules governing FSA companies (as you will all know much better than me). Mis-selling an investment is no joke.
Encouraging the HMRC to tax spreadbetters as "tax cheats" isn't very smart. I've a feeling that this gentleman's comments will come back to bite his firm and his punters.
Food for thought.
OFFTOPIC - It's nice to post here without actually discussing my own trading!
