Spread Betting, Cfds And The Budget Cgt Hike From 18% To 28%: Tax Implications

The Conservative and the Liberals have just decided to raise the Capital Gains Tax (CGT) from 18% to 28%

. This was better than I initially thought although I still think it's too high and should not apply to share buys but I would say that wouldn't I?

The higher rate will apply to non-business assets, with property buy-to-let investors likely to be the biggest losers. The rises would also impact the contracts for difference (CFD) market, but spread betters are safe as they are not liable to Capital Gains Tax. The annual exempt amount for 2010-11 will remain at the level set previously, at GBP10,100.

How far will the tax rise?

The CGT tax rise goes up from 18 per cent to 28%.

Who will be exempt from the tax rise?

Entrepreneurs, spread betters, and lower and middle income earners who are set to receive a substantial increase in the personal allowance.

Who is going to be affected by the CGT Rise?

Buy-to-let investors, private equity and CFD investors, shareholders, bondholders and mutual funds.

How significant is the CGT Rise?

In any case I don't really have a problem with CGT at 28%, it was absurd to reduce it to less than income tax. What I was upset about was the Liberals attempt to remove the GBP10,200. Now, it has been frozen but at least it's intact. CGT in the UK is still quite favourable for speculators as its only 28% and you get a tax free allowance of 10K a year. Someone making 30K gains a year will only pay 5.6K in tax, and even less if they have a joint account with the wife.

What is the situation in the United Kingdom stock market trading market?

Many brokers in the United Kingdom are setup as spread betting outfits where you're technically gambling, even if your broker is hedging all the positions in the market. I like to use spread bets for my speculative punts because the profits on gambling are currently 100% tax free in the UK - you don't even declare a gambling win. I'm British (well Scottish really) and it's nice to just make a bit of extra cash without having to pay tax, or have the hassle of filling in a tax return...etc...

I know that the spreadbetting companies state that it is a tax free product because it is classed as betting rather than trading, but what about the tax man's view on spread betting for a living as a sole source of income?

Regardless of whether the gambler is professional or not, whether profits are sole income or not, there is no tax to pay on spread betting (quote the nice people at HMRC over the phone). From HMRC website: 'To be taxable, the spread betting wins must come not merely from an opportunity presented by a trade, they must arise from the carrying on of that trade. Whether or not a particular spread bet is taxable will depend on the terms of the contract and the economic substance of what is done.'

What is tax situation outside the UK?

As a UK resident, I am familiar only with the tax situation that affects those like myself. For us, spread betting profits are free of all taxes and this is true for whatever the markets or wherever the traded market is located. Other countries where an account with a UK spread betting provider are permitted, as with any other form of financial gain/earnings (or losses!), local tax laws will be applied to the individual as appropriate.

by: Peter Wong

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