ONE of the biggest draws of spread betting over traditional share dealing is the former’s tax status. Although the Treasury is currently searching under each and every rock and stone in the search for revenue, it is highly unlikely that spread betting will lose this position.
Spread betting is tax free for the consumer in the UK, as long as it does not constitute your main source of income. As such, most spread betters are able to escape the 18 per cent capital gains tax (CGT) that must be paid by shareholders on traditional share trading. Revenues from spread betting are also free of stamp duty and commission on each trade.
According to IG Index “spread bets as far as a customer is concerned are treated the same way as a bet in horse racing, and as such you do not pay tax on your gains. At the same time, you cannot write off your losses against tax. Customers are not liable for stamp duty as we as a provider pay duty direct to HMRC.”
Contracts for difference are treated differently. Providers do not pay duty on CFDs in the way that they do on spread bets and the cost is borne by traders in the form of CGT, though the first £10,100 is exempt from tax (this includes all taxable gains, not just those from CFDs). Any losses can be written off against your tax bill.
Due to the constantly shifting status of tax law, investors should always do their due diiligence. In common with all things financial, it is prudent to have your accountant on speed dial to maximise your take home profits and to avoid an unwelcome knock on the door from the taxman.