By financen | November 13, 2015 - 6:10 pm - Posted in Financial spread betting

If you trade in the traditional markets, Stamp Duty and Capital Gains Tax can eat into your profits. In the UK, financial spread betting is not subject to the taxes that traditional trading is:

UK Capital Gains Tax

When you sell an asset the profit you make is liable to Capital Gains Tax (CGT). This tax is also levied when you sell securities on the traditional market. All profit over the Annual Exempt Amount (AEA) is liable to CGT. In 2015/16, the AEA is set at £11,100 for an individual.

For example, you sell £40,000 of shares that you purchased for £20,000 and make a pre-tax profit of £20,000. When the AEA is subtracted (£20,000 – £11,100), the amount liable to Capital Gains Tax is £8,900.

CGT is normally charged at two separate rates, dependant on your income:

Basic rate taxpayers pay the Standard Rate, levied at 18%, for individuals with a total taxable income and gains up to £31,786.

Higher rate taxpayers pay the Higher Rate, levied at 28%, for individuals with a total taxable income and gains in excess of £31,786.

Using the example above, as a Standard Rate taxpayer you would pay £1,602 of your profit to the taxman.

Assuming you are liable for the Higher Rate of CGT, you would pay tax of £2,492 on your gains.

If you placed identical trades using a financial spread betting provider you would usually be exempt from CGT and can keep the £20,000 profit.

UK Stamp Duty

As a normal UK taxpayer, you will pay a 0.5% rate of Stamp Duty at the point of purchase when you trade on the traditional market. In the above example you would pay £100 of your profits to the taxman by way of Stamp Duty.

In financial spread betting, because you never own the underlying asset, you would not be liable to pay Stamp Duty on your profits.

With Stamp Duty and CGT added together, in the above scenario you stand to lose £1,702 as a basic rate taxpayer, or £2,592 as a higher rate taxpayer. In financial spread betting, you can trade on the same markets but keep 100% of your profits.

Tax laws are subject to change and depend on individual circumstances, we encourage you to seek independent tax advice. If spread betting is your main income you may be liable to pay tax on your earnings.

Because your spread betting gains are treated as tax-free, your losses are not deductible against other income.

Risk Warning: Spread betting is a leveraged product. Losses may exceed deposits.

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