Potential mass exodus from Spreadbetters.

[Xavier berthod]

Brokers are adjusting by getting offshore regulation

Had this from my brokers, I suggest you all make your opinions heard by emailing the ESMA.

The European Securities and Markets Authority (ESMA) is proposing some changes which are likely to considerably affect your trading. Their proposals for retail customers include lower leverage on spread betting, forex and CFD products and changes to the margin close-out rule as part of a wider review of the industry. ESMA does listen to the opinion of traders and will make its final decision according to the feedback it receives. You have until 5 February to provide feedback to ESMA, and we would strongly encourage you to do so.

Example 1 – CFD/FX: You trade 1 lot of EURUSD. The margin required currently is 310. The margin required under the new ESMA proposal is 4133.33.


Example 2 – Spread Betting: You trade £1 per point on GER30. The margin required currently is 133.08. The margin required under the new ESMA proposal is 665.40.


They also propose changes to close out rules which would virtually remove our ability to hedge bets!!

Spoke with an account manager from my broker, they will find a way to keep the leverage up to 400:1 using Cayman Island, Vanuatu , Man Island, ... regulation. up to the client to get the leverage he wants based on what regulation he wants.

 

[koteltrader]

Unless you are resident in Australia and part of the tax system it would be highly unlikely that an Aussie broker will open an account....even if you are with the same broker in U.K., Different regulatory and tax systems.

Not entirely accurate. It depends entirely on the broker. IC, mentioned upthread, will happily open accounts for UK and EU residents. IG tell me they wouldn't feel comfortable opening an Aussie account for a UK resident.

I'm not endorsing either, btw.

 

[bradley79]

I've seen some companies that have found a loophole in the system:
ESMA only applies to brokerage firms.
Some EU brokers started opening subsidiary firms registered as gambling services (ESMA regulations do not apply for them). So, they will continue offering binaries and spread betting as a service from a third party firm (their subsidiary).
So, yeah. They found a loophole in the regulation.

 

[Brumby]

I've seen some companies that have found a loophole in the system:
ESMA only applies to brokerage firms.
Some EU brokers started opening subsidiary firms registered as gambling services (ESMA regulations do not apply for them). So, they will continue offering binaries and spread betting as a service from a third party firm (their subsidiary).
So, yeah. They found a loophole in the regulation.

I would caution that the issues probably cut both ways. An entity not subject to regulations mean it is unregulated and comes with all the baggage. Be careful with what you wish for.

 

[bradley79]

I would caution that the issues probably cut both ways. An entity not subject to regulations mean it is unregulated and comes with all the baggage. Be careful with what you wish for.

True that.
Anyone who's interested in binaries and SB should do it knowingly that it's unregulated and carries all the risks that the regulation was set in place to protect against.

 

[NVP]

Unless you are resident in Australia and part of the tax system it would be highly unlikely that an Aussie broker will open an account....even if you are with the same broker in U.K., Different regulatory and tax systems.

Yep....

 

[NVP]

Spoke with an account manager from my broker, they will find a way to keep the leverage up to 400:1 using Cayman Island, Vanuatu , Man Island, ... regulation. up to the client to get the leverage he wants based on what regulation he wants.

Hahahahahaha......I feel so assured and safe.....

Vanatu.....home of bungy jumping .....

N

 

[NVP]

I've seen some companies that have found a loophole in the system:
ESMA only applies to brokerage firms.
Some EU brokers started opening subsidiary firms registered as gambling services (ESMA regulations do not apply for them). So, they will continue offering binaries and spread betting as a service from a third party firm (their subsidiary).
So, yeah. They found a loophole in the regulation.

Sure companies will find loopholes to offer big leverage ....but the client will not be protected if the company goes broke .....that’s the point

I can go out tomorrow and get 500:1 from a company in Timbuktu.....but I will never see my profits or deposits ever again

It’s about staying with companies that will pay you out :smart:

N
:smart:

 

[bradley79]

Sure companies will find loopholes to offer big leverage ....but the client will not be protected if the company goes broke .....that’s the point

I can go out tomorrow and get 500:1 from a company in Timbuktu.....but I will never see my profits or deposits ever again

It’s about staying with companies that will pay you out :smart:

N
:smart:

I absolutely agree. Don't get me wrong. I am not defending such practices in any way shape or form.
After all, we're all in it to make a profit and such scam brokers should be shamed, publicly ridiculed and prosecuted to the fullest extent of the law.
P.S never forget that a good broker can go bad and vise versa.

 

[koteltrader]

Just heard from one of my UK brokers. The new ESMA regulations are expected to be implemented in August.

 

[kalott]

" IG stated that it has received around 15,000 applications since November 2017 from clients to elect to be categorized as professional, and 3,800 clients are now categorized as professional. The process for assessing these applications is appropriately rigorous and over three-quarters of the applicants to date have been rejected. Clients categorized as professional contributed over 35% of UK and EU OTC leveraged revenue in the last three months, and the company continues to expect this proportion to rise to 50% when the ESMA measures come into effect."

https://www.leaprate.com/forex/brokers/ig-group-q4-revenues-144-million-esma-cfd-leverage-cap/

 

[FXX]

If you categorise yourself as a professional trader with spread betters then say goodbye to tax free earnings.

Sent from my SM-G950F using Tapatalk

 

[Lee Shepherd]

If you categorise yourself as a professional trader with spread betters then say goodbye to tax free earnings.

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Hey mate,

You may wish to check who told you this or where your information comes from as it’s incorrect. Your tax status will not change. Check for correct information from your broker and in written format or preferably from your accountant or HMRC (UK Tax office). Don’t accept an unrecorded phone call or hearsay.

In other words, if you don’t pay tax or offset tax currently whilst spread betting, you won’t pay tax when you’re classed as a professional. Regardless of the broker. A derivative product is just that. You are betting/gambling on an outcome and therefore under UK tax law, is subject to tax only by the broker or/and bookmaker.

*Indivudual circumstances may differ. But still as above, if you don’t pay tax or offset losses now, you won’t when you state professional. You will waiver some FCA protection. As always, one should do their due diligence in to their own individual tax affairs and check carefully that they are happy to leave behind retail trader to professional trader. Especially when using high leverage as negative balances can be brutal to those who cannot afford margin calls.

I have provided a link from IG with further reading and evidence of the above for those interested in becoming professional.

https://www.ig.com/uk/help-and-supp...a-professional-client-and-how-do-i-become-one


Lee

 

[FXX]

Hey mate,

You may wish to check who told you this or where your information comes from as it’s incorrect. Your tax status will not change. Check for correct information from your broker and in written format or preferably from your accountant or HMRC (UK Tax office). Don’t accept an unrecorded phone call or hearsay.

In other words, if you don’t pay tax or offset tax currently whilst spread betting, you won’t pay tax when you’re classed as a professional. Regardless of the broker. A derivative product is just that. You are betting/gambling on an outcome and therefore under UK tax law, is subject to tax only by the broker or/and bookmaker.

*Indivudual circumstances may differ. But still as above, if you don’t pay tax or offset losses now, you won’t when you state professional. You will waiver some FCA protection. As always, one should do their due diligence in to their own individual tax affairs and check carefully that they are happy to leave behind retail trader to professional trader. Especially when using high leverage as negative balances can be brutal to those who cannot afford margin calls.

I have provided a link from IG with further reading and evidence of the above for those interested in becoming professional.

https://www.ig.com/uk/help-and-supp...a-professional-client-and-how-do-i-become-one


Lee

Thanks for clarifying that Lee.

It was purely an assumption as I was told some years back by traders that spread betting is only tax free if its not your primary income (professional trader) and that you should never disclose trading as your profession when signing up with one. This is why I naturally assumed if you have to register with them as pro it's a slam dunk case for hmrc.



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[barjon]

Thanks for clarifying that Lee.

It was purely an assumption as I was told some years back by traders that spread betting is only tax free if its not your primary income (professional trader) and that you should never disclose trading as your profession when signing up with one. This is why I naturally assumed if you have to register with them as pro it's a slam dunk case for hmrc.



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It’s tax free at the moment even if your sole income. The only time you’d be in trouble and maybe taxed is where your spread betting could be deemed to be part of some other taxable business activity that was related - maybe selling a trading system or some such.

 

[FXX]

It’s tax free at the moment even if your sole income. The only time you’d be in trouble and maybe taxed is where your spread betting could be deemed to be part of some other taxable business activity that was related - maybe selling a trading system or some such.

But your view of this doesn't match what's on the mhrc site


"However, an organised activity to make profits out of the gambling public will normally amount to trading.
Although over time new forms of games of chance have evolved, these principles remain the same. The taxpayer placing a spread bet is not normally carrying on a trade (see*BIM22020*for exceptions). They are not taxable on the profits, nor do they receive relief for their losses. The bookmaker organising the spread bet is taxable on their profits."

"The principles of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 (see*BIM22019) apply equally to spread betting. 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. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done".


When I read this to me it translates into spread betting in a professional capacity is taxable.


Here is a case referenced on the hmrc site

n Burdge v Pyne [1968] 45TC320 the proprietor of a registered club which provided gambling facilities, including a card room, won considerable sums of money from three-card brag which he played regularly with members in the card room. He was taxable on his gambling winnings.







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[barjon]

http://www.trade2win.com/boards/spr...tting-tax-free-profits-not-2.html#post2354110

 

[Brumby]

You may wish to check who told you this or where your information comes from as it’s incorrect. Your tax status will not change. Check for correct information from your broker and in written format or preferably from your accountant or HMRC (UK Tax office). Don’t accept an unrecorded phone call or hearsay.

Your tax status on your source of revenue derived from spread betting is dependent on your personal facts and not on whether you have opted to be designated as a "professional" in IG's client categorisation. However I think the intentional redesignation is likely to cause you to loose "safe harbour" protection. In simple taxation terms, safe harbour provisions and protection are generally a set of publish rules that provide certainty to a tax payer as long as that tax payer operates within those rules. Once you stray out of those rules then there is a risk that the IRS might target you for further investigation. You will therefore need to ensure that your personal situation can stand up to scrutiny.

In this digital age, I can think of a scenario in how it might happen with data mining. The IRS request that IG provides a list of all professional clients and their earnings. The IRS will then match those earnings to their respective tax return. If none is reported, you will get a please explain letter from the IRS. By being on the "professional" list you have effectively sailed out of safe harbour. Now that doesn't mean your earnings will be taxed but you better make sure your tax affairs can stand up to scrutiny and the consequences if the IRS decides against you.

Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done".

Totally agree. It is always about economic substance.

 

[Lee Shepherd]

Great comments by all.

As usual though, we shouldn’t over complicate things. But those who question taxation on spread betting does speak volumes to me. More so when they’ve been on T2W for several years. If we’re winning or earning from the markets then we would be fully aware of this already.

@ Brumby - I know very little to nothing about the IRS (Taxation) in your country. I’m only aware of my situation in the UK (HMRC - UK tax office) and their rules around this. Although important to mention, for the sake of clarity and to save people getting confused, maybe a thread specifically on the taxation rules in your country would be a good idea.

I’ve provided links and shown evidence of my trading for over a decade. I do not pay tax on my winnings, I’ve never paid tax on my winnings and until the tax law changes, I will never pay tax on my winnings. HMRC has to change for this to happen. This is important to note how I speak. Winnings. Not earnings. I’m simply gambling.

I’m not interested in reading through individual case files (although I’m lightly aware of them and the many decades ago of when) whereby people have run clubs for gambling and been taxed or allowed their facilities to be run as gambling establishments and been taxed. That’s their complicated affairs and hence why it’s gone to court.

Think of it like this: you hear an employee or your mate talking about how much they’ve won this month. Hey, like my employer lost £2k this month. I beat my employer and won.

Or on the flip side your mate says: so I went to the casino last night and earnt £200. Yep, they paid me £200 for me getting a black on roulette.

Can you see (some people won’t), how absurd these statements are. Why then do I hear people still talking about spread betting as trading for ‘a living’ and ‘earnings, profit, income’ etc. It’s gambling, it’s sold as gambling and will remain gambling until HMRC states otherwise with a blanket statement across the land. However, by doing so would lose them more money than they would gain and hence why gambling is taxed direct at the bookies and not the gambler.

If one is spread betting they are gambling. If they are lucky enough to win,they will not be taxed. Equally they will not be able to offset their losses against tax.

Side note: This subject will never be put to bed by some as they will constantly bring it up from time to time. But it does say a lot about them. I would say listen to those doing or have done not those that don’t or can’t. Ie, you want a Ferrari, speak to the person who has one, not your mate with a rover.

Wishing you all a good day trading...... or gambling.

Lee

 

[FXX]

Hi Lee

I am somewhat confused as you have personal experience of not paying tax while the HMRC text on this matter includes:

The principles of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 (see*BIM22019) apply equally to spread betting. 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.

This statement implies that it is taxable. Being a curious guy i spent the last 20 minutes browsing the web for anything that either supports or is a counter argument. here is what i found (there is a good amount of articles that seem to counter your argument:

http://www.tradingspreadbetting.com/trade/trading-and-taxes

"HMRC will try to tax betting if it forms part of another trade. 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. This could happen if, for example, you were a professional stockbroker or share trader, in which case your spread-betting profits would probably be taxable.

Effectively, if spread betting is your main source of income, then this is considered trading and you will be taxed on these profits. Most spread betters should be fine, but it’s worth keeping this in mind if you’re considering moving into spread betting full time.
"


https://www.taxation.co.uk/articles/2010/12/15/21465/better-bet

An accountant states:

"Effectively, if spread betting is your main source of income, then this is considered trading and you will be taxed on these profits. Most spread betters should be fine, but it’s worth keeping this in mind if you’re considering moving into spread betting full time.

My interpretation of this is that if you do something else for a living, which makes you realise a bit of cash could be made from a certain spread bet, it’s not a trade. But if what you are doing day in day out is spread betting, then it is a trade…"


http://www.accountantsfortraders.co.uk/articles/aug-2011/trading-or-spread-betting/

"There is not a definitive argument between the two treatments and whilst true spread betting is outside the scope of tax, if you are a market maker or have your trades organised in such a way as to not be a mere ‘punter’, it is likely that your trading activities will be seen as taxable."

http://www.spreadbettingportal.com/spread-trading/spreadbetting-taxes/

"if HMRC considers that your full time occupation is trading, then regardless of what the spread betting companies say, you may be liable to receive a tax assessment. It will then be up to the individual to prove to HMRC that he/she does not have a tax liability."


Could it be that you might have been sailing under the radar and in reality a target for investigation. I read Barjon's link he shared and there are individuals on there that seem to have been paying tax and additionally discussed it with their accountants. Admittedly i am always on the cautious side of believing forum posts at face value but it seems to be clear to me based on HMRC and other articles that it definitely isn't a clear case of no taxation. Are you dodging tax

in any case the way i see it is this classification at spreadbetters for professional traders to me is exactly the type of thing the HMRC would have a field day over. I know their dirty games as i am a consultant and they have a record of targetting consultants and backdating laws to scr3w them over for tax. I know at least 4 people that have been nailed with one of them owing over 100k. Sure this is unrelated but where i am going with this is the taxman are dirty dogs that will go out of their way to find dodgers.