Is Spread Betting UK Tax Free?

By Louis H-P on March 12, 2023

For any trader, costs are like the plague and to be avoided when possible. Therefore spread betting UK tax is something worth knowing about… as there is none! Yes, unlike most things in life, where there is a cost, your spread betting winnings are mostly exempt from tax. Find out why this is and increase your knowledge of personal tax in the process!

Do you pay tax on spread betting in the UK?

Spread betting is placing a trade using a derivative. This is because you do not own the instrument. You are basically betting on the direction on which the price will go. As a result this is considered speculation. This has an effect on how it is viewed by HMRC.

HMRC views spread betting as gambling due to the lack of ownership of the underlying asset. This also means that Capital Gains Tax and Stamp Duty are not liable as there is no transfer of asset. There you have no tax to pay on spread betting if you are a British citizen and pay your tax in the UK.

How other countries approach spread betting

Australia, Ireland and South Africa do not charge capital gains on spread beating profits.

You should consider that spread betting is banned in many countries, such as the USA. In other countries it is authorised but the taxes you pay can be punitive. Examples include 20-40% across some EU countries.

It is important to consider these taxes. This reason for this is the increased cost, added to the increased risk of spread betting may mean that the profit achieved is not actually worth it for the time you are committing to learning how to spread bet. In effect, you may be wasting your time and not actually earning much money for all the effort you are putting in.

There are some negatives!

There are a few disadvantages to be aware of. Firstly because you are not paying taxes on your winnings, you cannot write off any losses. This is a disadvantage. In the UK, capital gains tax on winnings for non-derivative assets starts at £12,300. This means you have to make this much before paying tax, but it means you can write off unsuccessful investments.

This is something to consider if you are a first time investor. Investing in lower risk assets which are taxable but provide an option to write off your beginner mistakes could be attractive.

Spread betting means leverage, which means you could lose big. As a result do not think the tax free advantage is one to focus on. It could be the leverage is too dangerous for you if you are an inexperienced trader.

If you become very successful at spread betting and decide to make it your full-time profession, you will be liable for income tax in the UK. As a result it can be better to do so as a side secondary income. This is especially the case due to the pressure involved in trading spread betting.

Do not let the tax tail wag the investment dog

You are a trader first and a tax advisor second! That means your decisions should be driven by what you think is a good trade, taking into account risk adjusted returns and the risk-reward ratio. You should not base your trades on the tax advantages as you are bound to get confused as to what you are trying to achieve.

Conclusion

You should be able to trade successfully before you decide to focus on tax. This suggest that you should learn to trade using instruments which are lower risk than spread betting. Once you have developed your own trading strategy, you can then look to maximise your trading income by taking advantage of spread betting UK tax being non-existent!

The following two tabs change content below.

• Bio
• Latest Posts

Louis H-P

Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.

Latest posts by Louis H-P (see all)