Spread betting is tax-free as the HMRC deemed it as betting and not trading, which means no Capital Gains Tax or Stamp Duty applies to UK residents. There are other benefits of spread bets over buying shares, from leverage and flexibility to no commissions.
The HMRC has different tax laws that apply to the way UK residents trade financial markets. Buying and selling shares, making a spread bet or trading CFDs are all treated differently from CGT to stamp duty. This not only can impact winnings but also applies to the tax treatment of losses in the United Kingdom. While individual circumstances may impact tax, we have provided up-to-date tax laws and how they are applied to trading.
What are the UK spread betting tax benefits?
If you are a trader of financial products in the UK, you might find spread betting an attractive option since it is a tax-free alternative to other financial derivatives like CFD trading.
1. No Capital Gains Tax
There are no capital gains taxes to concern yourself with when spread betting. The profits you make are exempt from CGT, so you can keep all of your profits.
2. No Stamp Duty
In spread betting, you do not hold the underlying asset. Therefore, you do not pay stamp duty tax, reducing your trading costs over time.
3. No Commission
Apart from not paying taxes, you do not have to pay commission fees. This no-commission spread betting works by factoring in the cost of opening your trade into the spread.
There are, however, a couple of exemptions to the no-tax rule to be aware of:
- If you spread bet professionally, and it is your only source of income, then you will be subject to income tax.
- If you have opened a limited company and trade through the company, then the HMRC considers this as a trading activity of the company. Therefore, it becomes taxable on profits through corporation tax.
The above is not tax advice, please seek a professional who will provide advice tailored to your specific circumstances.
If you want to start trading, I recommend you start with the minimum stake sizes (roughly 25p per point) and scale your stakes once you know what spread betting is and how it works. So, make sure you choose a broker for beginners in derivative trading that allows you to trade with smaller stake sizes.
How are spread bets vs CFDs Taxed?
Spread betting and CFDs are very similar, yet they differ in how each is taxed. The reason is that CFDs are not defined as gambling since there is the exchange of a contract. Below is a table I put together to show the differences in how they are taxed:
| Tax Type | Spread Betting | CFDs |
|---|---|---|
| Capital Gains Tax (CGT) | 0% | 10 - 20%* on profits |
| Claim Losses Against CGT | 0% | Yes |
| Stamp Duty | 0% | 0% |
| Dividend Tax | 0% | 0% |
*Subject to income tax band.
Spread Betting vs Share Trading
Spread betting and share trading are two different ways to trade the markets, and for this reason, taxes are not applied the same way. When you buy shares, you literally own a piece of the company, so it can be considered an asset of value. In the table below, I have provided the differences between the two when it comes to taxes:
Tax Type
Spread Betting
Share Trading
Capital Gains Tax (CGT)
0%
10 - 20%* on profits
Claim Losses Against CGT
0%
Yes
Stamp Duty
0%
0.5%
Dividend Tax
0%
8.75 – 39.35%*
*Subject to income tax band.
Tax Free Spread Betting Countries
In the UK and Ireland, spread betting is classed as gambling instead of investing. Therefore, the UK and Ireland are the only countries where it isn’t taxed. So, if you’re from Australia, there will be taxes. There are several markets available for trading.
Tax On Tradable Instruments
Brokers offer an extensive range of markets that would typically be subjected to tax if you traded via CFDs or by purchasing the assets directly. Below is a list of assets you can trade tax-free:
1. Currency Pairs
Currency pairs are one of the world’s most traded markets, with over $7.5 trillion exchanged daily. You will find that every broker will offer forex on their platforms, which allows you to bet on no-tax currency pair price movements.
2. Indices
You can trade indices like the Dow Jones or FTSE 100 free of tax. Although most brokers offer the top global indexes, you will find that they are named differently but are similar, so it’s easy to identify them. For example, the NASDAQ is called the US TECH 100.
3. Shares
Trading traditional stocks is heavily taxed, which is why you may prefer to spread bet using shares rather than own the stock. By taking advantage of its reduced tax liability, traders can access an extensive range of stocks across major markets.
4. Commodities
Commodities previously had a lot of extra costs associated with them, like storage fees and taxes apart from their sell price. Now, every financial spread betting broker offers a range of commodity markets, from gold to coffee, so that you can trade them without the added expenses or taxes. Gold is one of the most popular products to bet on.
5. ETFs
Exchange Traded Funds are a modern way to trade funds that invest in specific sectors of an economy (renewable energy or banking). These funds can be traded and are more liquid than buying traditional funds, but they also come with similar expenses and taxes, like shares.
What Are The Best Tax Recording Spread Betting Platforms?
The best platform allows you to automatically collect the information and export it so you can send it to the tax authorities. You want to document everything for your records, which includes:
- The trading timestamps
- The stake amount
- The open & closing price
- The profit or loss of the spread bet
I download this information and maintain my records monthly because I don’t want to panic if the broker loses the data when it comes to requesting it. It also helps me organise my overall spread betting account’s profit and loss. With IG, you simply go to your account and request the statements:
Below is a list of brokers that have excellent platforms that make tax recording easy:
Each broker is regulated by financial conduct authority bodies and has offices in the UK, so you have all the necessary account features to quickly request your trading data when it is time to do your taxes.
FAQs
Why does the UK not tax spread betting?
Spread betting in the UK is considered a form of gambling by the HMRC. The tax ruling deemed it high risk, leading to the decision. In other words, spread bettors are considered to be professional gamblers.
While the no-tax status is its main advantage, it also means losses are not deductible. This should be considered as it is a high-risk form of trading, with more UK traders losing money than making profits. Learn more in our how to spread betting guide.
Are spread bets tax deductible?
Since you don’t get taxed on your spread betting profits, you can’t cancel out your losses against other capital gains. It is classed as gambling instead of trading; this key difference is why the HMRC will not let you offset your losses from these.
I suggest consulting with a personal accountant specialising in investment and day trading. Penalties for non-payment can be costly and include additional fines for late payments.
What are spread bets and CFDs?
Spread bets and CFDs are financial instruments that allow traders to open positions with leverage. In the former, profits have no tax, whereas the latter could be subject to tax.
You need to pay tax on profits made while forex trading if you trade spot forex or forex CFDs in the UK. The good news is you can offset your profits with your losses. If you are spread betting forex, on the other hand, then you do not need to pay the CGT.
You can learn more about tax, tax purposes, and other elements on our spread betting vs CFD trading page.
Final Notes
The forex market is the most liquid market for trading by far (more than even stocks), so it represents an exciting opportunity for retail investor accounts. Spread betting is one means to capitalise on this liquidity with the added advantage of allowing you to avoid paying taxes. We have covered the best forex brokers in the UK.
Disclaimer
The above article is for information purposes only and should not be considered as tax or investment advice. Consult with a qualified tax preparation professional.
