Many new traders are curious about tax due on Forex trading profits. If you are a new trader, I suggest putting your energy into actually becoming profitable first and concerning yourself about tax implications later i.e. Once you are profitable.
If you are making a profit from Forex or need to satisfy your curiosity, then please read on...
Once you have a funded trading account and are making trades you may be liable for tax on Forex trading profits, as well as tax relief on any Forex trading losses. The advice below is strictly for UK tax residents and is a brief guide only - please seek the advice of a tax professional before following any of the advice on this page.
CFD Trading - Tax on CFDs
Do you need to pay tax on CFD trading profits?
It all depends on whether you consider yourself a speculative trader, a private investor, or a full-time (professional) trader. Each is taxed differently by HMRC. Taxation is also different on whether profits were made by CFD trading or spread betting. Below is a guide for CFD trading profits. Spread betting profits will be covered later...
Speculative trader - If Forex is not your main income but a secondary income (such as a side hustle), then any profits could be tax-free and may not need declaring to HMRC. This is because CFD trading can be classed as gambling - just like spread betting - which is tax-free in the UK.
If trading provides a lower income than your main job i.e. It is not your main job, or is done as a money making hobby from your phone, you may be considered a speculative trader.
Private investor - If your CFD trading is more about investing i.e. holding positions long-term and only have a few trades each month, then you could be considered a private investor. If this is the case, then CFD profits will be declared to HMRC and liable for capital gains tax.
The basics of capital gains tax for Forex trading profits is a tax-free allowance of £12,300, followed by a capital gains tax rate of 10% (if a basic tax rate payer). Please note, the tax-free allowance and rate may have changed since writing this post.
If you have lost money as a Forex investor, then you may be able to claim capital gains tax relief.
Full-time trader - If you are serious about trading and it becomes your main income, then you will be classed as a self-employed trader. You will be liable for income tax and NI on all Forex profits minus losses and expenses.
If you are a full-time trader, then it may be more tax efficient to trade through a limited company. I suggest you speak with an accountant about this.
How do you declare and pay Capital Gains Tax (private investor)?
You will need to file an annual Capital Gains Tax return. This is usually best done online. Contact HMRC for further details.
How do you declare and pay self-employed income (full-time trader)?
You will need to file an annual self assessment tax return. This is usually best done online. Contact HMRC for further details.
Spread Betting - Tax on Spread Betting
Do you need to pay tax on Spread Betting profits?
Spread Betting is tax-free until it becomes your primary income or job - as long as you keep spread betting profits as a secondary income, you will not need to declare your profits to HMRC or pay tax on them!
Once your main income comes through spread betting, all profits will be liable for income tax, as a self-employed trader.
How do I declare and pay income tax?
You will need to file an annual self assessment tax return with HMRC. This is usually best done online. Contact HMRC for details.
Don't be fooled by the claims that spread betting is totally tax free. Spread betting is tax free until it is your main source of income or your main job. This law is the same for any gambling related activities - if you are a professional gambler, then you are liable for income tax on gambling profits.