Difference between Spread betting and CFDs

[small_bites]

I understand SB is being marketed as tax-free opposed to CFDs, but is that the only difference?

I'm a novice and looking to have a punt at day trading and want to understand the SB/CFD difference before looking for a suitable broker.

 

[tomorton]

That's pretty much it. There will be a small difference in spreads but probably not enough to dint your results.

 

[small_bites]

thank you tomorton

It seems a number of brokers don't mention spread betting as being part and parcel with their brokerage services. I've only come across a handful of SB affirmatives but so far user reviews have been extremely discouraging (at the moment a little warm with CMC). A bunch of the ones I've observed only offer CFDs. Does a CFD confirmed broker offer both SB and CFDs account options by default?... or is SB a unique addition with individual account privileges? If the latter, is there a list of "SB account" brokers I can check with options to further refine the search per requirement?

I was meaning to start a new thread titled "help with choosing a broker" but want to research a little more so I can ask all the right questions before disturbing the TW2 resident experts/experienced traders

 

[tomorton]

According to the European regulator, ESMA, SB is a type of CFD, so they are both subject to the same regulations on margin etc.. But in the UK SB and CFD are treated differently by the tax man. Firms can choose if they wish to provide both types of account but they are so similar it makes sense that they mostly do. It won't affect your SB experience as a client if the firm offers CFD accounts as well.

 

[10pips]

Not sure how much of this is true.
SB is tax-free, any large winnings, you wont be able to use this money to buy assets such as house etc.

 

[BigDeal]

SB is tax-free, any large winnings, you wont be able to use this money to buy assets such as house etc.

What do you mean? There are no restrictions if you've won the money fair and square, surely. If you rely on spreadbetting for your income, you almost certainly won't be able to borrow from any reputable lender I guess, but if you've won enough to buy something outright, then why not?

 

[Akwin]

CFDs and Spreads are both derivatives and can be made on margin - if necessary, margin requirements apply if necessary.

True, and the key difference between spread betting and CFD trading is how they are treated for taxation. Spread betting is free from capital gains tax (CGT) while CFD trading requires you to pay CGT*. Spread betting is also only available in the UK or Ireland, while CFDs are available globally.

 

[Akwin]

CFDs are short-term leveraged derivative contracts that track the value of some underlying instrument and pay off accordingly. Spread betting involves placing a speculative bet on the price movements of an underlying instrument without actually owning it.

 

[Henow1969]

As spread betting involves betting on the view of prices either going up or down, it cannot offer the ability to trade with banks or hedge funds and receive institutional-grade spreads. As CFDs involve trading the underlying market price via contracts, traders can access the ability to trade directly with banks and hedge funds to receive lower spreads and lightning-fast execution.

 

[tomorton]

As spread betting involves betting on the view of prices either going up or down, it cannot offer the ability to trade with banks or hedge funds and receive institutional-grade spreads. As CFDs involve trading the underlying market price via contracts, traders can access the ability to trade directly with banks and hedge funds to receive lower spreads and lightning-fast execution.

This is CFD-marketing guff from Admiral Markets.

How important has the impact of these things been on anybody's trading?

 

[ffsear]

This is CFD-marketing guff from Admiral Markets.

How important has the impact of these things been on anybody's trading?

Yep, literally a copy and paste job from admiral markets website. Not sure if these are bots trying to boost this sites SEO to sell more advertising. I don't know what's going on but this site is becoming more and more unreadable by the day.

Its a shame, so many good posters have disappeared

 

[LuckyMac]

I understand SB is being marketed as tax-free opposed to CFDs, but is that the only difference?

I'm a novice and looking to have a punt at day trading and want to understand the SB/CFD difference before looking for a suitable broker.

Interesting thread. Ill be keeping an eye on this

 

[BigDeal]

To clarify, a CFD should mirror the underlying market, and you will pay a commission to trade it (e.g. in the case of a share transaction). A spreadbet will have a wider spread ie you pay no commission but the broker's profit is built into that wider spread.
As already stated, there is no income or capital gains tax liability attached to spreadbets, but this method of trading is not available in every jurisdiction.

 

[FXX]

spread betting can be taxed as income if it is your main source of income.

 

[Roberto]

spread betting can be taxed as income if it is your main source of income.

This is a myth - it's just completely wrong. Not only wrong, in fact, but ironically enough the exact opposite of the reality.

We used to have these arguments in this forum, 10+ years ago.

The same thing was said then, too. It was wrong then and it's wrong now.

The difference between the discussions then and now is that in the intervening period, there's actually been a long-overdue High Court ruling on the subject, which has at long last definitively clarified the position.

The only party ever assessed for tax on spreadbetting profits was someone (the appellant in the case concerned) whose spreadbetting income was part of a wider trading business - in other words it WASN'T his sole income: he also sold trading signals and coaching. The court held that his entire business - including spreadbetting profits - was taxable, and it was also expressly clarified in the judgement that someone whose sole income was from spreadbetting could not be taxed on it (for neither income tax nor CGT).

I don't know where and how this myth started being propagated, but it's certainly disappointing to see it still being repeated even after all these years. Anyone still in any doubt about should confirm their own tax situation, as it affects their own income, by speaking to staff at HMRC's helpline, rather than by depending on anything - however well-intentioned - said online in a forum.

You're welcome.

 

[MasterOfCoin]

This is a myth - it's just completely wrong. Not only wrong, in fact, but ironically enough the exact opposite of the reality.

We used to have these arguments in this forum, 10+ years ago.

The same thing was said then, too. It was wrong then and it's wrong now.

The difference between the discussions then and now is that in the intervening period, there's actually been a long-overdue High Court ruling on the subject, which has at long last definitively clarified the position.

The only party ever assessed for tax on spreadbetting profits was someone (the appellant in the case concerned) whose spreadbetting income was part of a wider trading business - in other words it WASN'T his sole income: he also sold trading signals and coaching. The court held that his entire business - including spreadbetting profits - was taxable, and it was also expressly clarified in the judgement that someone whose sole income was from spreadbetting could not be taxed on it (for neither income tax nor CGT).

I don't know where and how this myth started being propagated, but it's certainly disappointing to see it still being repeated even after all these years. Anyone still in any doubt about should confirm their own tax situation, as it affects their own income, by speaking to staff at HMRC's helpline, rather than by depending on anything - however well-intentioned - said online in a forum.

You're welcome.

Thank-you @Roberto .

It does not reflect well on T2W when 'Experienced Members' post garbage, albeit commonly held, misinformation.

Your concise and well-informed response should put this issue to rest once and for all.

Well Done,


MOC.

 

[tomorton]

spread betting can be taxed as income if it is your main source of income.

It would be good to hear from any trader who is taxed on their spreadbetting profits where this is the main source of income.

 

[1nvest]

BIM22020 - Business Income Manual - HMRC internal manual - GOV.UK (www.gov.uk)

"To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade". HMRC's words

spreadbetting is not taxable, whether its your main source of income or not. IF you are merely "trading". Its considered gambling, and as such is non taxable. whether you are a professional gambler or not
Tax on Betting and Gambling in the UK – Do you pay tax on your stake or winnings? What tax do betting companies pay? | Online Betting UK

to be taxable for spreadbetting you must be providing a service of spreadbetting. either a brokerage, or a signal service, or training etc. spreadbetting itself is not taxable.

 

[rogue8]

The difference between the discussions then and now is that in the intervening period, there's actually been a long-overdue High Court ruling on the subject, which has at long last definitively clarified the position.

The only party ever assessed for tax on spreadbetting profits was someone (the appellant in the case concerned) whose spreadbetting income was part of a wider trading business - in other words it WASN'T his sole income: he also sold trading signals and coaching. The court held that his entire business - including spreadbetting profits - was taxable, and it was also expressly clarified in the judgement that someone whose sole income was from spreadbetting could not be taxed on it (for neither income tax nor CGT).

Thanks Roberto.

Do you remember which case this was? I can't find it online. https://financeandtax.decisions.tribunals.gov.uk/Aspx/default.aspx doesn't work and there's nothing on http://taxandchancery_ut.decisions.tribunals.gov.uk/ that I could find.

The ruling seems clear after reading the (sparse) gambling section of the business income manual.
This should put it to bed: https://community.hmrc.gov.uk/forum...5d3b9236#1df3e639-2211-eb11-a813-000d3a7ed30d where HMRC Admin 5 confirms it's not taxable. The High Court case clearly involved 'carrying on a trade'.

But then it gets a bit confusing when you have articles stating the contrary like https://www.accountantsfortraders.co.uk/articles/aug-2011/trading-or-spread-betting/index.php (2011 article apparently updated in 2020)
"When could my spread betting activities be taxable?
If you approach your spread betting in a professional manner, it’s your only source of income and you structure your activities in a way that minimises the likelihood of losses being made..." I assume they're referring to the 'badges of trade' and I assume they know what they're talking about. But not as much as the HMRC. Then again, from what I've heard, different members of the HMRC contradict each other... Which adds uncertainty.

Then there's this dude https://www.financial-spread-betting.com/Tax-free.html saying that HMRC said that, "If you have a 'subsistence income' (i.e. enough to live off) from an independent source that you pay tax on, then HMRC can't tax you on your spreadbetting activities. It's only if you have no other source of income and you use it for your primary income source that the tax advantages may disappear."

Either way, I'll write HMRC clearly stating my situation and asking for written confirmation, but I prefer doing some research first. Does anyone know who at the HMRC to write to? I prefer a paper trail. I found the gambling duties department in their contacts directory https://www.gov.uk/government/organisations/hm-revenue-customs/contact/gambling-duties. I wouldn't want them to come back and tell me it's taxable though!

Cheers

 

[BigDeal]

Spreadbetting is not taxable, pure and simple. It is categorised as gambling - you are never taxed if you win at the casino, if you bet on horses, greyhounds, football, lotto etc.. etc.. no matter how successful you are. Spreadbetting is no different.
Apart from anything else, so many people are unsuccessful at it, it's not worth HMRC imposing a tax regime on spreadbetting.
The only time HMRC are going to be interested is if you are trading through an official business and spreadbetting is used as tax avoidance or evasion.