Spread bet profits are tax-free and you get to keep all your profits but you can’t offset those losses against other capital gains. Let’s look at the example below.
Let’s look at the following scenario: you want to sell some equities and make a nice profit of £50,000 but at the same time you had a £50,000 investment in shares of another company which just went bust. In this case, you can offset your capital losses against capital gains, thus you have £0 net capital gain and you pay £0 in CGT.
Same scenario but this time you spread bet on shares: As financial spread betting is tax free, you can’t offset your losses against capital gains and thus you’d still have to pay Capital Gains Tax on the £50,000 profit you make from the sale of equities, even though you actually made no profit from these two transactions.
Yes, this type of trading involves no taxes for retail traders and you don’t even need to report any profits or losses to the HMRC, just like with any other gambling activity. Please note, you can’t offset your spread betting losses against other capital gains.
The short answer is no. Spread betting is tax-free and thus you can’t offset your losses against other capital gains.
Let’s say you hold £10,000 worth of shares and decide to hedge your portfolio against the market turmoil by going short with a spread bet. What if the share price keeps going up? Yes, you will lose money on your short trade but make a profit from your shareholdings; as you can’t offset your losses against gain, you’ll have to pay capital gains tax (CGT) on your gross profit. CFDs would be a better choice for hedging – CFDs vs spread betting: how do they compare?
It all comes down to what trading instrument UK day traders use. Since this article is about spread betting then the answer is NO. Spread betting is not subjected to Capital Gains Tax (CGT) nor stamp duty in the UK and it is the main reason successful traders utilise financial spread betting for their trading needs. On the other hand CFD trading profits are taxable so it’s imperative to understand the difference between CFDs and spread betting.
Financial spread trading is only available in the UK and Ireland, in other countries you would need to use other trading instruments such as futures or shares and these products are subject to tax (please check with your tax authorities).
Unfortunately, more than 70% of traders lose money and since spread bet traders can’t offset those losses against capital gains, the taxman in the UK actually benefits from this regime. Also, as spread betting falls under the gambling regime, the taxman collects more tax from your provider.