Tax Implications of Spread Betting in the UK
The Benefits of UK Spread Betting
One of the most publicized benefits of spread betting is that any profits that you acquire are totally exempt from taxation if you are resident of the United Kingdom. However, why is this and are there any other major implications that should be bought to your attention? Before proceeding further to investigate this subject in more depth, you need to consider the next very important statement:
“Tax laws can alter and can differ in other jurisdictions outside Great Britain. Consequently, you should always take legal and financial advice when evaluating your tax obligations”
Current Tax Status in the UK
Presently, profits produced from financial spread bets are exempt from UK tax. They do not attract either capital gain or income tax liabilities. The reasoning for these decisions are, in each case, totally legitimate and center about the basic issue concerning whether spread betting transactions are gambling bets. For instance, you will only be subjected to capital gain taxation if you sell an asset at a profit. Clearly, as spread bets do not involve the transfer of asset ownership then you should be exempt from this form of taxation.
Nevertheless, you can encounter problems if you create a profit stream from your trading activities which then becomes your principle source of income. Under such circumstances you will be utilizing your expertise and abilities to create a livable salary in a similar way to other consultants, such as doctors and lawyers. If you were fortunate enough to achieve such a desirable status that you will have PAYE obligations. If you are uncertain about your professional status then you should always consult with an appropriate expert about these matters.
What is the viewpoint of the UK government? There are some good reasons why the UK Inland Revenue is not desperately in a hurry to modify the current taxation status of spread betting. This is because not only will profits be subjected to taxation but losses could then be used to offset future taxation liabilities. Such a situation could cause serious problems for the UK authorities. As the majority of spread betters are gamblers and not professional traders, most of them lose consistently as opposed to capturing consistent streams of profits. As such, the Inland Revenue could lose more income than it would gain if it started to tax spreading betting seriously.
Do any other taxation implications exist that you need to consider if you are a UK citizen? Yes, there is. For instance, the downside to your spread betting profits being exempt from tax is that your losses cannot be used to offset your future taxation obligations. In contrast, you would be entitled to this important benefit if you were involved with other more traditional forms of speculation, such as trading the stock and currency markets directly.
The Implications of Tax-Free Spread Betting
As already stated, if you are an UK citizen then your profits will not be subjected to capital gain or income tax levies. In addition, your spread betting activities will not attract stamp duty. You will find that not being eligible to capital gains taxation is a big advantage as this status will prevent you from losing a significant portion of total earnings. There are also no income taxation liabilities pending which could strip as much as 50% of your total returns if you have a high income status.
However, you need to appreciate that your spread betting activities will only remain tax free as long as they does not become your primary source of income. Consequently, many taxation specialists advise that you should list yourself as a trader or day trader when you initially open an account with a spread betting broker. This is because if you do not undertake such a step then you could experience difficulties verifying that spread betting is not your key source of income if the UK Inland Revenue should query your status at a later date.
Essentially, if you earn enough to survive by using other legitimate sources of income then your spread betting income will not be subjected to taxation. You will only encounter problems if this is not the case and you are living totally from the earnings acquired from your spread betting pursuits. If you have any doubts whatsoever, then you are advised to consult with the UK Inland Revenue directly in order to resolve any uncertainties.
In a nutshell, if you are a successful spreading betting trader who earns a consistent stream of sizeable profits then you will be exempt from any form of taxation as long as this is not your primary source of income. In contrast, if you do not have another taxable occupation then the Inland Revenue will classify you as a professional gambler and you will lose your valuable tax exemption status.
So for the sake of total clarity, if you already pay Income Tax though some other form of employment then your spread betting activities will not be subjected to taxation even if the profits that you acquire exceed your income. This is because you will not be categorized as a professional gambler under such circumstances.
The primary reason why the Inland Revenue is so reluctant to classify you as a professional gambler is that you will then be entitled to use your trading losses and costs to offset your future taxation obligations. Currently, as the majority of UK spread betters are not full-time gamblers then they are not subjected to any form of taxation.
If you were so fortunate as to make a living from this form of speculation then you may be so wealthy that you could recruit the professional services of an accountant to address your taxation issues. In addition, you could also provide yourself with some form of protection by creating a self-employed subsistence income which could attract PAYE. However, if you do adopt such a ploy then you must appreciate that UK taxation laws are open to interpretation as well as being updated on a regular basis, especially to address any loopholes.