Please note this article relates to the tax situation in the UK only. It is not intended as tax advice. Please seek professional tax advice with regard to individual circumstances.
If you are considering spread betting in the UK, it is essential to understand your potential tax liabilities. Getting your tax return wrong and not declaring what you should declare can leave you with financial penalties. For instance, not only would you have to repay your tax liabilities, but you would also have to pay interest and HMRC could decide to levy substantial fines.
The good news is that, under most circumstances, you do not need to pay tax on your spread betting gains. You will not be charged capital gains tax and, even if spread betting is a significant source of your primary income, you will not be charged income tax. Your gains are also free from stamp duty and National Insurance contributions.
There is an important caveat. If spread betting is your only income source, or if it is a part of your business, for instance, if you run a spread betting business or website, then it is possible that the HMRC could decide to investigate a little more deeply. The problem with trading that is on the edge of regular activities is that HMRC can sometimes form an “opinion” on it based on previous case law. It is a bit of a grey area. Let us look at the UK tax law in more some detail.
When is a spread bet taxable?
According to HMRC, whether a spread bet is taxable depends on the terms of the contract and the resulting economics. HMRC quotes the cases of Down v Compston  21TC60 and Burdge v Pyne  45TC320.
- The first involved a professional golfer employed by a golf club. In addition to carrying out his professional duties, he would also play private games for bets. This provided him with substantial wins. However, he was found to be not liable for tax as these bets were private and not a golf betting business.
- In the second case, the proprietor of a gambling club which included a card room won a significant amount of money on three-card poker he played with club members in the card room. In this case, he was found to be liable to pay taxes as his winnings were considered to be part of his business.
What do you think the outcome would have been had the gambling club proprietor lost rather than won? Would he have been allowed to offset his poker losses against his tax liability on the other profits the club made? It is doubtful. As we said, it is a grey area.
The fact is of course that most people who spread bet lose money. In fact most studies find that between 75% and 90% of spread bettors lose over the long term and now firms have to publish on their websites the exact percentage of their clients who lose money overall, as you may have seen.
So it is perhaps not surprising that the UK tax authorities have decided not to come after the winnings of those few people who do profit from spread betting. Much easier for them to tax the profits of the spread betting firms themselves, which tend to be very substantial. Just take a look at the profits of firms like IG Index and Plus 500 for example.
Conclusion – Tax on Spread Betting Winnings
The bottom line is that you will not be charged a spread betting tax in the UK, unless it is your sole source of income or part of your business. Otherwise, rest assured that the taxman will not be able to get his greedy hands on your profits. The UK is a relative spread betting tax-free zone, that is until HMRC decide otherwise…
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