Britain’s new coalition government has found that the public finances to be an even bigger mess than they were warning the public about.  This has meant that they have had to look at new ways of raising taxes, and revenue raising measures will include some quite steep hikes to capital gains tax that will affect share dealing profits.  However spread betting may be a way around these costs.

The proposal on share dealing profits is a tax rise that has been put forward by the Liberal Democrats.  Essentially all capital gains were simplified a couple of years ago so that they would only be charged at 18% no matter what type of asset they were, how long they had been held or whether or not they had a business purpose.  The Liberal Democrats proposal is to reintroduce the business purpose to the Capital Gains Tax, and so whereas assets that had a business purpose (such as a shareholding in a business or a whole small business) will still be charged at 18%, any personal gains will be charged as if it were Income Tax.  This would have the effect that the amount that was paid would go up to the marginal tax rate.  This could mean a small increase to 20% for a basic rate taxpayer, but for many other investors it will mean more than doubling the rate to 40% and for some of the highest earners the tax rate will rise from 18% to 50%.

Spread betting in the UK is classed as gambling, so does not pay either income tax or Capital Gains Tax on the profits from the shares.  This is because the losses from gambling would then become tax deductible.  This means that spread betting is a way around this tax increase.

Spread betting can be used to mirror the effects of share dealing.  Although the commission is higher (as it is on a smaller exchange than the stock exchange) this is a small proportion of the tax that would otherwise be paid.