Tax Benefits of Spread Betting

With spread betting, you can cashout all of your profits without paying any tax. This means all the money that you will be able to generate from the financial markets won’t have any other charges. This applies to traders in the UK although it is important to remember that tax treatment depends on your individual circumstances and may change in the future

Why is it tax-free?

With spread betting you are not making a physical purchase or sale, so you do not incur some of the drawbacks of trading physical assets. Chief among these in the UK is the need to pay stamp duty or Capital Gains Tax on purchases and sales. And because profits from betting are not taxed in the UK, any money you make from spread betting is yours to keep in full.

Let’s have an example for you to understand better how this tax-free trading works:

Let’s say you purchased 1000 Barclays shares at 125p per share. This means you need to pay £1250 plus the 0.5% stamp duty reserve tax which is equivalent to £6.25. If the market value of Barclays rises to 150p per share and finally decided to close the position by selling all of your all shares, you gained a £150 profit. This will then be subject to the UK Capital Gains Tax (applies if your yearly total taxable gains has exceeded your CGT allowance). The basic or lowest CGT rate is 18% in the UK.

Now lets see the difference if it was a spread bet in ETX trading. With the equivalent exposure, let’s say you placed a bet of £10 per point on Barclays shares at 125p. Since there will be no stamp duty or CGT to pay, if you decide to close your position by selling your shares at 150p, you get to take home the £150 profit without any deductions.

In the event that you incurred a loss, you won’t incur any other deductions with spread betting as the losses cannot be claimed as a tax relief against other income. A physical trade on shares however is still required to pay stamp duty reserve taxex even if the trade resulted into a loss.

Such comparison on both scenarios show that spread betting is indeed more rewarding.

Note: To know more about the tax treatment of spread betting and to make sure if such treatment also applies on your own circumstances, please seek independent advice.