Is Spread Betting Really Tax-Free?

Please answer me – if I’m making money on spread betting do I pay CGT and do I have to let the tax people know, thanks

Spreadbetting winnings are basically classified just like other betting winnings: they’re not subject to either Income Tax or CGT, and you don’t tell the taxman about them.

The flip side of that is that it works both ways: if they’re losses rather than winnings, they cannot be used to offset either income made elsewhere or capital gains made elsewhere.

For completeness, there is the clear exception that if you set yourself up in business as a provider of betting services – e.g. as a bookmaker or as a spreadbetting firm – then the gains you make on your bets with your customers would become taxable and the losses you make on those bets would be eligible to offset against the gains. They would be taxed by Income Tax if you were acting as a sole trader or as a partnership, and by Corporation Tax if you set up a company to do the business.

And there are also some somewhat murky cases around the borderline of that “bookmakers are taxable on their gambling winnings; ordinary punters are not” distinction. I don’t think someone indulging in ordinary spreadbetting is likely to run into them, but if you want to see the taxman’s view on such issues, take a look at the various “Betting and gambling” pages accessible from http://www.hmrc.gov.uk/manuals/bimmanual/BIM22000.htm

In any case remember that tax-free profits are great in theory, but in order for your profit to be tax-free, you need to actually make a profit.  I know that’s an obvious thing to say, but what may not be so obvious is that most day traders end up losers.

Spread betting in theory is not my major source of income as I have a full time job.  But suppose I give up paid employment and did spread betting full time (which is my intention) then it would be taxable? If so would it be income tax or CGT?

The principles of Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 (see BIM22019) apply equally here. 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.

If it is your only or main source of income, then they will attempt to tax it.

If it related directly to your day to day employment i.e. you are a trader for an investment bank, then they will in certain circumstances attempt to tax it.

If you work for Glaxo and earn £300,000 a year and make £100,000 from spread betting they will not be able to tax it.

If you earn £200,000 a year as an employee and have made over £1m a year for the last 3 years from spread betting – they will tax it.

Got around 20K of spread betting losses and around 10K of realised equity gains – I assume i cant claim anything for the spread trading losses as they are not subject to CGT?

Correct