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Is UK spread betting a smarter way of saving tax for Forex traders?

In recent years, spread betting in the UK has continuously grown in popularity among traders. Millennials and other younger generations looking to invest show a preference for leveraged products like spread bets and contract for differences (CFDs) as a major part of their investment.

The reason for this is quite simple.

In addition to offering traders more room to respond to market changes quickly, spread betting is free of the 18 % capital gains payable on trading profits in the UK. The capital gains amounts to the difference between what you pay for an investment and what you eventually sell it for. There is also no stamp duty and no commission on each trade you make apart from the spread.

Not having to pay capital gains tax is a great motivator for spread betters in the UK as it allows them to factor an additional 18% return on trading profits. Essentially, you will be saving cash that would have otherwise gone to the taxman.

Moreover, with spread betting, there is no income tax on dividends, which is levied at rates as high as 50% for high-income earners.

Managing risk with spread betting

Spread betting offers an alternative to grow your money by using the liquidity of the global Forex (currency) markets, which is a high risk and high reward financial market. To better manage risk and their money, spread betters in the UK rely on two of the best spread betting brokers UK has to offer – Pepperstone and Capital.com.

Pepperstone is a leading Forex and CFD broker. Based in Australia and ASIC regulated, it is still accessible to spread betters in the UK who want to trade spreads with minimum deposit requirements. Their trading platform offers both a mobile app and MT4 versions.

Capital.com is another broker that offers the advantage of tax-free profits with betting on spreads. Their smart spread betting app is powered by AI.

However, it is important to understand that spread betting in the UK may only be tax-free if it is not your main source of income.

Bearing down on tax payments

That means that when you open a spread betting account with any of the spread brokers available, you should not put your job description down as ‘day trader’ or ‘trader’. This way, the Inland Revenue will not have any grounds to query where you made your money at a later date.

If you have a ‘subsistence income’ (which means. enough to live off) from an independent source that you pay tax on, then HMRC cannot tax you on your spread betting activities. It’s only if this is your primary income source that the tax advantages may disappear.

As a taxpayer in the UK, it is best to use other forms of trading in addition to spread betting. This way, you should not be liable for tax on your trading profits.

If you have a regular job or are registered as a self-employed you will not lose your BIM22017 exemption. In that case, you don’t need to pay tax on gambling winnings or trading profits even if they exceed your employed income.

It is worth pointing out, that even if the HRMC classifies you as a gambler or trader, you can still claim relief against losses from gambling and against the spreadbet companies’ proportion of their gambling tax.

You can read detailed reviews of these and other spread betting brokers in the UK on our website.

All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
Galina Mikova

Galina is a Hubspot-certified Technical Writer with over 10 years of experience in working with Fortune 500, private investment, banking, FOREX and niche tech companies as well as crypto and blockchain startups. She has a solid background in FinTech and blockchain technology.

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