Let us assume that you have recently entered into the lucrative world of the Forex markets. You may have even already accrued a tidy profit margin. It is important to appreciate the tax implications that such a position may (or may not) have on your current situation. One of the issues here is that the laws governing this scenario are not well understood. Let us endeavour to clear the air a bit in terms of your obligations to the HMRC.
Dispelling the “Gambling” Myth
One common misconception is that Forex trading is considered gambling and it is therefore not subject to capital gains or income tax. This is actually false. Forex trades involve acquiring and disposing obligations (currencies) within a discrete time period. Therefore, regular investors are obligated to pay any tax on the capital gains that they have made.
Regular Versus One-Off?
The word “regular” was noted within the last paragraph. This is another key point to highlight. The HMRC views a few isolated trades in a much different light when compared to an individual who utilises an electronic platform such as CMC Markets CMC Markets on a regular basis to accrue a steady form of income. Of course, this is seen as a rather “grey” area and each user will determine his or own trading habits quite differently. Some will claim that it is only a hobby while others may readily admit that they have enjoyed a substantial amount of supplemental income as a direct result of astute investments. If you suspect that you fall into the latter category, it is wise to complete a self-assessment form and record all gains during the fiscal year.
Spread Betting Versus Contracts for Difference
It is also important to point out a major difference between spread bets and a CFD position. Spread betting is currently NOT taxable by the HMRC while CFD positions are. The main point to appreciate here is that any losses incurred within a CFD position can ultimately be offset in relation to another taxable position (such as a spread betting portfolio). This is one of the reasons why many traders will frequently employ both methods.
It is always wise to consult directly with the HMRC to clarify any additional points, as they can be quite confusing at times. Still, never forget that the failure to pay taxes can result in hefty fines and other undesirable litigation.
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