With the current debate about the rise of Capital Gains Tax many people are looking at spread bets as a way of getting around capital gains tax while still being exposed to the share market. Another area where both contracts for difference and spread bets really work well is with stamp duty. CFD taxation is different from spread betting tax.

Stamp Duty is charged at 0.5% for every transaction that is made. This may not sound like an enormous amount of money when compared to the 18% Capital Gain Tax, particularly when this rate could move to 50% for some of the highest rate tax payers. However the rates can be somewhat deceptive.

The first thing to remember about Stamp Duty is that it is charged on every transaction, and with most share deals there are two transactions – the buying and the selling. So it will cost 0.5% when buying and 0.5% when selling. If the share is at exactly the same point when bought and sold that will come out to about 1% of the value.

The other thing to remember is that there is no ability to offset losses, there is no annual allowance of more than £20,000 for a married couple and if there are two buy and sell transactions every month for a year then the stamp duty will be 48% of the value of the shares.

Contracts for difference and spread bets are both exempt from stamp duty. While this is not a big issue for a buy and hold investor, it is a big issue for a frequent trader and yet another reason to look at these great routes into investment.