Tax treatment of CFD financing charges

[knorrie]

Does anyone know how the Inland Revenue treats CFD financing charges for tax purposes? This is the 'interest' you pay when in a long position, or receive when short, not the commissions. I've asked my CFD provider (E*Trade) about this, and they were a bit cagey, said they couldn't advise me on such tax matters.

I can see (at least) two possibilities:

1. It's treated as part of the capital gain/loss or cost of carrying out the trade, just like regular commissions, so would be included in CGT calculations not income tax.

2. It's treated like bank interest and charges, so I guess you have to add up the amounts you receive and include it in interest received for tax purposes, and ignore the payments you make, just like you do with a regular bank account.

Has anyone already been through this with the tax people or their accountant?

KenN

 

[knorrie]

Had an interesting reply to this on another trading site from someone who's already looked into this (am I the only one on here trading CFDs?).

This was that the amounts received on short position financing can be treated as unearned income, and the charges on long positions can be used to offset this as cost of carrying out the trade. So not offset against capital gains, more like interest on a bank account where you can claim the overdraft interest + bank charges against tax (would be nice).

However it seems there is no definitive policy on this from the Revenue, it's up to the local tax inspectors, so YMMV.

KenN

 

[Vorpal]

Hi knorrie,

Hows this for a late reply!

What did you find out about claiming interest against Capital Gains? Is it possible?

Best wishes

Vorpal.

 

[Tuffty]

Vorpal, The interest expense (or income if short) is part of the CFD product so can be taken as a cost (or gain if short) in the CGT calcualtion. See the Inland Revenue web site and the help sheets on CGT.

 

[Vorpal]

Vorpal, The interest expense (or income if short) is part of the CFD product so can be taken as a cost (or gain if short) in the CGT calcualtion. See the Inland Revenue web site and the help sheets on CGT.

Thanks for the input Tuffty, much appreciated.

I viewed the information from the Inland revenue shortly after I posted and now realise I can include the 'interest'. Lucky for me as I have incurred nearly £10000 in interest during the last year.

Vorpal.

 

[Tuffty]

That is a big figure. The various CFD firms financing charges do vary quite a lot. I'm in need of one with low financing costs. I like the look of the IG Index platform but am put off by the high financing costs for kind of trading strategy I want to employ.

 

[Vorpal]

That is a big figure. The various CFD firms financing charges do vary quite a lot. I'm in need of one with low financing costs. I like the look of the IG Index platform but am put off by the high financing costs for kind of trading strategy I want to employ.

Financing are not something I have compared so I may well be paying too much as I use IG.

Thanks for bringing it to my attention.

Rgds

Vorpal.