Spread Betting Tax Free: Is It Really?

For some people in the UK and Ireland, spread betting has become a popular way to try their hand in the stock market. Its primary appeal is that one doesn’t need substantial capital to start this venture. This is because you only have to pay a portion of an asset’s total value and speculate on whether its price will rise or fall. You could earn a profit for every point of movement if your predictions were correct.

Financial spread betting is a leveraged trading product. With this, you have more opportunities to grow your money compared to traditional investing. It also means that you can take advantage of the market regardless of its direction since you can wager that a security’s price will go up or down, unlike buying stocks in which you should only hope that its value will rise instead of fall.

More Profits

Another advantage of spread betting is that you get to bring home all the profit because it’s tax-free. Say, you do spread betting with Pepperstone UK with a bid-offer of 123 GBP, and you open a long position of 10 GBP per point of price movement. If the share’s value goes up to 125 GBP, you earn 200 points, which is multiplied with 10 GBP to make 2,000 GBP.

Moreover, you are assured that you can bring home the entire amount without deduction. You don’t have to pay capital gains tax (CGT) since you don’t own the underlying asset. You’re only speculating on its future price.

Capital gains tax is deducted from the sale of an asset that has increased in value. You must pay this if you sell or dispose of personal possessions that cost 6,000 GBP or more, except for your car, business assets, and properties that aren’t your primary residence. Plus, CGT is calculated for profit that you gained from your main home if you’re renting it out or utilizing it for business.

You must also pay CGT for shares that aren’t part of an individual savings account (ISA) or personal equity plan (PEP). However, you don’t have to worry about tax deductions from your spread betting profits because it’s classified as betting, although it’s completely lega similar to lottery or pool winnings.

The sale and purchase prices are crucial variables to include when calculating for CGT. You must also be mindful of details, such as the exact dates when the transactions were conducted. You should put in information on investments, like shares, equity funds, and fixed maturity plans as well.

On a side note, most spread betting platforms or brokers don’t charge a commission fee because they get their income from the spread or the difference between the buy and sell prices. This means that your profit remains intact since the process is tax- and commission-free.

These factors make spread betting an ideal strategy for people who want to grow their money exponentially, but don’t have enough capital for traditional investing.
 

An Exemption

However, spread betting isn’t tax-free if you register as a full-time trader or when it’s your primary source of income. Even if you apply for a part-time job on the weekends and earn substantial profits from spread bets throughout the week, you’re, still, likely to be investigated by Inland Revenue because your so-called subsistence income can’t cover your weekly or monthly expenses.

Most of the time, however, people get away without declaring their profits from spread betting and aren’t chased down by the government. Moreover, if the Inland Revenue was to start charging CGT on gambling, they would, then, have to offer relief on losses, which would end up costing the country more money.

The best thing that you can do to avoid getting in trouble with the law is to monitor and keep all relevant paperwork for your spread betting venture so that you can provide evidence in case you’re challenged by Inland Revenue. Also, stay under the radar by making sure that you don’t put day trader or investor in the job description when you create an account with the spread betting platform.

Conclusion

Spread betting is an excellent way to start investing in the stock market, even if you don’t have a substantial capital to grow your money exponentially. It entails speculating on the movement of an asset’s price and earning a profit if your predictions are correct.

Aside from the low capital required for the venture, another primary appeal of spread betting is that it’s tax-free. You won’t have to pay capital gains tax, as well as commissions for your earnings, which means that you can bring home a considerable sum when you win. Take note, however, that spread bet profits aren’t tax-free if it’s your primary source of income.