Forex trading/gambling

Forex trading/gambling

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I spoke to a potential new client yesterday, who makes 'a bit' of money doing forex trades in his own name.  He does not put it through the business and claimed that he did not pay tax on it as it was classed as 'gambling'.  I suppose materiality comes in to it, but surely, if he is making money on it, it is like buying and selling shares, and therefore taxable.  

The other question, is it income tax or capital gains??

Replies (20)

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By mjshort
02nd Oct 2013 11:22

Depends on type/amount

Gambling (so nil tax) will apply if using Spread Trading and CFD trading. Otherwise for futures trading or margined forex trading Capital Gains will be incurred for infrequent trading. Income tax will be charged for frequent trading (if they spend a couple of days a week upwards).

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the sea otter
By memyself-eye
02nd Oct 2013 11:27

Sounds like trading

and if so income tax not CGT. I don't think HMRC regard foreign exchange trading is gambling (even though it is) otherwise all thiose brokers in London would pay even less tax than they (allegedly) do- the clue might be in the word 'trading'.

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By andy.partridge
02nd Oct 2013 11:33

Capital gains

My understanding was that HMRC usher the trader towards capital gains so that losses can not be offset against employment/self-employment income.

Maybe that's an urban myth, but I have one such client and that's how he discloses gains and losses.

I thought that was the big debate - income tax or CGT, not that is was gambling.

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By hkfinancials
02nd Oct 2013 11:40

Salt V Chamberlain

Agree with Andy.

Salt v Chamberlain said individuals trading in shares pay CGT and one would think the same principle applied to forex trading. Unless things have changed since then.

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By Paul Soper
02nd Oct 2013 11:47

The Big Bang

Salyt v Chamberlain was pre big bang when only licensed dealers could trade in shares as a principal and so be liable to income tax.  All others, even stockbrokers trading in a personal capacity, were within CGT and not income tax.  The rules are different for companies, it is much more likely that they will be regarded as trading, in the old terminology, as a principal.

Gambling's exemption goes back to Graham v Green and Graham v Arnott in the 20's/30's. Betting on the movement in an index is exempt, as is betting on a horse etc, but in currency trading and the like you are acquiring and disposing of obligations, as they are themselves capable of being bought and sold it takes you into the field of CGT or IT.

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By StartUpAcc
02nd Oct 2013 12:00

Depends if physically buying currency

...or if he is betting on the movement. Betting on the movement (without buying the currency) is gambling and is tax free. 

IG Index for example advertise that taking out spread betting on forex is tax free:

http://www.ig.com/uk/spread-betting

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By 19LEFKOSIA92
04th Oct 2013 14:53

FOREX TRADING/GAMBLING
If he is spread betting it is completely free of tax.

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By User deleted
04th Oct 2013 16:35

Spread Betting

see - http://www.cityindex.co.uk/ etc.

No tax - betting

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Maxi Watts
By SkyAccounting
18th Mar 2017 17:25

Lets put this matter to bed once and for all from a tax expert who's dealt directly with HMRC on this particular subject.

Spread betting is not classed as a 'trade' from HMRC's perspective therefore any profits made from spread betting are not subject to CGT or Stamp Duty in the UK. The principles of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 (see BIM22019) apply equally to spread betting.

Spread betting is treated in the same way as pure gambling. As StartUpAcc correctly stated, if an individual trader 'bets' on the 'movement' of a currency (i.e. the trader bets on a price going up or down) then any profits deriving from that movement are not subject to CGT or Stamp Duty in the UK. Unlike buying shares in a company, any gains you make would be taxable under CGT rules. This is because you're not buying shares in the hope that they fall in value (obviously!) but rather that they would increase in value over a period of time. You can indeed 'bet' on the 'movement' of shares as well and that too would be free from UK tax.

So to recap - If you're 'betting' that the price of a financial instrument (whether it be Currency, Metals, Shares, Commodities, Indices, Bonds, Interest Rates, Options etc) will go up or down then any profitable outcome of that bet will not be subject to UK tax, period.

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Replying to SkyAccounting:
By Tim Vane
18th Mar 2017 23:13

This matter had already been fast asleep for 3 years before you decided to wake it up just to put it to bed.

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Replying to Tim Vane:
Maxi Watts
By SkyAccounting
18th Mar 2017 23:55

Hi Tim

The whole point of waking the matter up again was purely so that 'current' readers (not the ones from 3 years ago) could hear it directly from the horse's mouth, who has a great deal of experience in this area of tax, as most (if not all) of the previous responses above were clearly from non-tax experts who weren't able to justify their facts properly with anything concrete or any kind of proper case law. Us tax experts we thrive on facts, not guesses. I'd therefore hate to see 'current' readers still confused over whether spread betting was taxable or not. So finally 'current' readers can sleep peacefully tonight knowing the correct facts. Hope you have a great evening too!

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By mjshort
20th Mar 2017 09:01

Jesus H Christ ... I said this 4 years ago in one line!

"Gambling (so nil tax) will apply if using Spread Trading and CFD trading. "

Some of us also have lots of experience in this area including gettting HMRC clearance for schemes and ER relief involving futures, spread, options,CFD etc..

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Replying to mjshort:
Maxi Watts
By SkyAccounting
20th Mar 2017 09:44

Thanks MJShort

I'm sure you will agree that most comments across most forums can't necessarily be trusted at face value purely because most users of forums are non-experts of the subject matter in question. Don't get me wrong, I think forums are a fantastic way to get a load of questions out in the open. When I read your comments, and indeed others, about whether spread betting is taxable or not, it doesn't fill me with absolute 'by the book' confidence that those are truly the facts purely because they have no solid backing behind it (i.e. quotations from HMRC manuals or legislation etc); with the greatest of respect what you've stated previously 4 years ago were merely comments to any tax advisor reading them. Anyone can lay down their thoughts in a forum but can they back it up with solid evidence? That's the big question I think you've missed...

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Replying to SkyAccounting:
By mrme89
20th Mar 2017 09:56

SkyAccounting wrote:

Thanks MJShort

I'm sure you will agree that most comments across most forums can't necessarily be trusted at face value purely because most users of forums are non-experts of the subject matter in question. Don't get me wrong, I think forums are a fantastic way to get a load of questions out in the open. When I read your comments, and indeed others, about whether spread betting is taxable or not, it doesn't fill me with absolute 'by the book' confidence that those are truly the facts purely because they have no solid backing behind it (i.e. quotations from HMRC manuals or legislation etc); with the greatest of respect what you've stated previously 4 years ago were merely comments to any tax advisor reading them. Anyone can lay down their thoughts in a forum but can they back it up with solid evidence? That's the big question I think you've missed...

You need to see a doctor to treat your 'head up own [***] syndrome'.

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Replying to mrme89:
Maxi Watts
By SkyAccounting
20th Mar 2017 11:09

Thanks 'Mrme89'

Not sure how you've all of a sudden become involved in this however I think it's fantastic that you've taken an interest in our recent discussion. Believe it or not I thrive on comments like yours because it shows me time and time again how others get so frustrated so quickly over such minor issues; we were merely having a calm discussion before you stepped in and blew it all up. Unfortunately in my profession (Accounting and Tax) we can't afford to throw our toys out of the cot when realising we don't know the facts about something; instead we stay calm and learn those facts. Realistically the whole purpose of this website is so that knowledgeable folks can just come in and answer things 'factually' in case there's still any doubt out there. Clearly this whole issue of me quoting facts about spread betting has upset you deeply, otherwise you wouldn't have responded to it in the way that you did, so I do apologise for that sincerely. In no way did I imagine that my initial comments on spread betting would lead to this. Hopefully it can now lay to rest and we can all forget about it and enjoy the rest of our day. All the best!

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By mrme89
20th Mar 2017 11:20

Despite what you say, this is not a recent discussion.

I haven't bothered to read beyond 'recent discussion'. I might have bothered had you used the return button on your keyboard and stuck some paragraphs in between on that fluff.

There is a thing called 'forum etiquette'. It is forum etiquette not to resurrect threads that are this old. It would have been better for you to start a new thread, and, if you felt the need, to reference this old thread.

Resurrecting old threads, dismissing previous answers, all whilst referring to yourself as an expert and that your answer is 'from the horses mouth' is just going to get people's backs up.

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By Steve123456
01st Sep 2017 10:30

Hello, I've just joined here after reading this thread. Please go easy on me, I'm a bit of a beginner :-)

Tax treatment of CFD's (Contracts for difference)

Is this CGT or Income tax ?

I basically have a portfolio of property investments which I let. This provides my income for my family to live from.

As a hobby I have a CFD account. Most days I take out a few positions on the direction of UK shares. Lets say I buy 3 - 5 positions in a typical day. I can hold these positions from anywhere between a few hours upwards to a few weeks or more. I basically buy a position and await the movement in the direction I hope will make me a profit.

For tax purposes, would HMRC class this as trading (and therefore Income tax) or speculation / gambling therefore CGT.

Thank You.

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Replying to Steve123456:
Stepurhan
By stepurhan
01st Sep 2017 11:21

Start a new thread. This thread is four years old, and has already been resurrected once.

Because of this the chances of you getting a response are very slim. You might even get some hostile responses for dredging up an old thread. Tax law changes so old threads tend to have answers that, due to such changes, are now incorrect.

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Replying to stepurhan:
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By Steve123456
01st Sep 2017 11:38

Thanks stepurhan.

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By brainstorm21421
17th Oct 2019 09:28

thank you for the information!
I've been trying to register for 20 minutes in order to say you thank you........

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