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Spread betting taxation query

Client has invested in a spread betting account that is tax free - or is it?

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My Client told me he was going to invest £20k in a spreadbetting account and told me he had read it was tax free so i looked it up and according to BIM22020 it would appear to be (and previous Aweb posts support this eg https://www.accountingweb.co.uk/any-answers/spread-betting-and-forex-trading  ). Since he invested in mid May his £20k has gone up by nearly £5k so lucrative while it works....!

However  he has just sent me a copy of the "Investment management agreement" relating to this £20k and he has not himself set up an online account with "spreadbettingrus.com"(made up name to avoid confusion) but has instead given the funds to a fund manager who has placed the funds in a "CFD (Contract for difference) and spread forex account" in the name of the investment manager and in return the investment manager guarantees a 10% return per month and any profits made are paid 70% to my client with 30% being retained by the fund manager as his fee.

To me this may not fall under the principal of the spreadbetting exemptions and the contract also states that "The Client agrees full responsibility for any/all personal liabilities regarding taxes." which i am sure is a cover all for them but i am not 100% sure.

My concern is that if it is classed as taxable he could have a large liability accruing - especially as he has told me that he now intends to invest a further £100k as his initial £20k has been so succesful (I have warned him of the risks but that is not my job i suppose - just felt i had to!)

Would anyone have any thoughts on this?

Replies (31)

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By Justin Bryant
23rd Jun 2020 09:01

WTF! Never mind tax. It's clearly a scam to guarantee 10% returns per month. I suggest he withdraws his money ASAP.

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Replying to Justin Bryant:
By ireallyshouldknowthisbut
23rd Jun 2020 09:16

I agree with Justin.

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Replying to Justin Bryant:
Part on Dudes
By Partyondudes
23rd Jun 2020 10:46

I have told him absolutely he should withdraw it, when he first suggested doing it himself through one of the "official" online platforms i gave him my opinion in a very strong way that he shouldn't but he insisted - he didn't listen to me 3 years ago either when he invested in a film production company his mate at the golf club had set up - he lost £50k there...... he tends to follow things his friends do despite my advice and this one is no difference - one of his friends recommended it - all i can do is give him my opinion (in writing very strongly) and unpick teh aftermess. !

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Replying to Partyondudes:
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By Tax Dragon
23rd Jun 2020 10:57

I've had clients like that. More money than sense (though desperately seeking to redress that balance by giving huge chunks of money away to unworthy recipients).

No unpicking to do is there? They're all tax nothings.

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Replying to Justin Bryant:
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By WhichTyler
23rd Jun 2020 12:23

TBF it's only 7% per month after fees

But good luck actually getting it...

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By bernard michael
23rd Jun 2020 09:07

You can't be taking this seriously. Give your client some proper advice i.e. Attempt to withdraw his money - I bet he can't for all sorts of reasons he didn't see in the T & C's
An immediate clue is RUS in the online account name

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Replying to bernard michael:
Part on Dudes
By Partyondudes
23rd Jun 2020 10:54

Apologies - the "spreadbettingrus" name was a name is used in the initial post to illustrate the point - i have amended to un-confuse matters

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Jane
By Jane Evans
23rd Jun 2020 10:02

This investment has too risky written all over it.

However to answer your tax query, spreadbetting is tax free in the UK. However contracts for differences are taxable. If the person is trading then it is subject to income tax. However HMRC rarely accepts trading as the investor usually makes losses and HMRC does not want to give relief for losses against other income. Therefore the other situation is CGT. And not all the brokers provide CGT reports so the tax adviser ends up calculating the gains and losses.

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Replying to Jane Evans:
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By Tax Dragon
23rd Jun 2020 10:21

CGT applies to assets.

The risk here is that the investor might not have acquired anything.... that's how scams work. No asset, no CGT loss.

Before he puts £100k in, it might be an idea to take his £25k out, to test whether he can. (And then do nothing for a month, to see what happens.)

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Replying to Tax Dragon:
Part on Dudes
By Partyondudes
23rd Jun 2020 10:52

I will encourage him to withdraw some (all!) first - he wont listen but i will of course document and strongly advise.

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Replying to Partyondudes:
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By Tax Dragon
23rd Jun 2020 11:01

I'm not allowed to give investment advice. Does this count as such, if it's not an investment? [Honest question - I have no idea on the answer.]

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Replying to Tax Dragon:
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By Matrix
23rd Jun 2020 12:28

No of course we don’t give investment advice. I wouldn’t give my opinion on either the £20k or the £100k and I have no idea why others are telling an accountant to advise a client to withdraw money from an investment. I would just advise on the tax.

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Replying to Matrix:
By ireallyshouldknowthisbut
23rd Jun 2020 13:42

Fair point, but you need to tell a client when they are being robbed.

Its sounds to be as bent as a 9 bob note if offering guaranteed returns of this nature, but you clearly don't say that to the client. You mention the "significant risk factors" in the offering and suggest that whilst you are not regulated to give investment advice, if you were the big red light in the corner is flashing and the alarm is going off.

FOREX seems to lend itself to scammers as the public don't really understand it.

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By lesley.barnes
23rd Jun 2020 10:28

I can't find this business when I google it. Its a scam how was your client introduced to it? You need to try to stop him now before he puts anymore money in, he won't get anything back.

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By bernard michael
23rd Jun 2020 10:55

He must be very rich, very stupid or both

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Replying to bernard michael:
Part on Dudes
By Partyondudes
23rd Jun 2020 11:00

Both...... he fell into a lot of wealth in properties in the late 90's - he was an estate agent and bought up loads of properties he was asked to market - sold some on at 50% profits within 2 years but held onto a lot - some of which are now worth 3x what he paid for them.....

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Replying to Partyondudes:
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By bernard michael
23rd Jun 2020 11:08

Partyondudes wrote:

Both...... he fell into a lot of wealth in properties in the late 90's - he was an estate agent and bought up loads of properties he was asked to market - sold some on at 50% profits within 2 years but held onto a lot - some of which are now worth 3x what he paid for them.....

I hope he did his tax returns correctly

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Replying to bernard michael:
Part on Dudes
By Partyondudes
23rd Jun 2020 11:33

Me too! i took over in 2010 and all i can assume is he did because his record keeping for the ones he still has is meticulous (his brother is his business partner who is very good at figures)

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By Mr_awol
23rd Jun 2020 12:29

Lots of posters keen to tell the client to withdraw their investments - and the OP admits to having advised this (and seemingly advised the same client NOT to invest in a previous venture, which the client ignored at an eventual cost of £50k)

I agree to an extent, and would give clients a bit of a health warning over anything which sounded risky - advise them to discuss it with someone more knowledgeable than I on such matters, etc and to be wary of scams. However, as a firm not regulated or authorised to offer investment business, how far can/should we go here? If the OP told the client to avoid the film partnership, and his mate ended up making a fortune, then the client would have been pretty peeved. Does 'investment advice' not cover the advice to withdraw from an investment, just as much as it covers advice to place one?

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Replying to Mr_awol:
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By Matrix
23rd Jun 2020 12:31

Agreed, I posted similar above.

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Replying to Mr_awol:
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By Tax Dragon
23rd Jun 2020 12:40

But suppose it is a scam? My question above was whether passing your money to a scammer constitutes making an investment. It doesn't for tax, also as I noted above.

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Replying to Mr_awol:
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By Justin Bryant
23rd Jun 2020 18:01

Eh? No-one made money on film p-ships. They were a total scam too. I warned all my clients not to invest. See:
https://www.accountancydaily.co/hsbc-faces-ps13bn-lawsuit-over-sham-film...

See also this:
"Even if advice as to risk had been outside the scope of his retainer, Hayhurst accepted he had a duty to flag up obvious risks which came to his attention."
https://www.lawgazette.co.uk/news/veteran-solicitor-fined-for-failing-to...

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Replying to Justin Bryant:
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By Mr_awol
24th Jun 2020 11:57

Fair enough - film partnership may not have been the ideal previous investment but substitute it with 'BPR friendly solar fields' or SEIS investments (if there is a combined investment/tax planning motive) or even just any high risk investment made - my point remains that I will flag up risk areas but I wont 'advise' clients to disinvest any more than I will advise them to invest in the first place.

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Replying to Justin Bryant:
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By Mr_awol
24th Jun 2020 12:04

Justin Bryant wrote:

See also this:
"Even if advice as to risk had been outside the scope of his retainer, Hayhurst accepted he had a duty to flag up obvious risks which came to his attention."
https://www.lawgazette.co.uk/news/veteran-solicitor-fined-for-failing-to...

Completely different. Hayhurst was being fed leads by the developers and would (or should) have known the full details of the schemes. If I was a 'panel accountant' advising people of formalities of an investment scheme when those people had been referred to specifically me for that one-off work by the promoters the scheme then I would be implicit in the arrangement and have a greater duty to advise those clients on the risks than if one of my clients casually walks in and mentions they've put £50k in an investment id previously never heard of.

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Replying to Mr_awol:
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By Justin Bryant
24th Jun 2020 12:26

Eh? If anyone guarantees 10% p.m. returns it's obviously a 100% scam, period.

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Red Leader
By Red Leader
18th Feb 2021 12:05

Totally agree. It would be fascinating to see the email reply to "Can I have my money back please?".

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By frankfx
23rd Jun 2020 17:17

Action Fraud.

Have a word with them.

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By frankfx
23rd Jun 2020 17:19

Have a word your own bank.

Do they have procedures to identify dodgy transactions

Then share with client.

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paddle steamer
By DJKL
24th Jun 2020 13:34

Whilst you cannot give your client investment advice you can make him aware of known investment schemes that turned out not to be as they purported to be, a little introduction to the likes of Bernie may make him at least temper his enthusiasm/pause for thought whilst he does some research.

The deal may be on the level but there have been a few such schemes reported over the years , so just refer him to these with no comment on whether existing "investment" is good or bad.

Here are two to get him started, there are loads of such articles he might read.

https://www.investopedia.com/terms/b/bernard-madoff.asp

https://www.investopedia.com/terms/b/bernard-madoff.asp

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Replying to DJKL:
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By Tax Dragon
24th Jun 2020 14:22

DJKL wrote:

Whilst you cannot give your client investment advice you can make him aware of known investment schemes that turned out not to be as they purported to be.

Thank you. I'll consider my question answered.

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