Trading Forex and Tax Implications

Filed under: Learn Forex Trading |

A lot of people choose to trade forex by using spread-betting platforms because they are tax-free financial vehicles due to the fact that they are technically considered to be betting and gambling. However, there are some grey areas that people should look into before making this choice. For example, if you make your sole income from spread betting, then this will be considered to be taxable based upon the fact that is it is your salary and you will thus be liable to pay income tax as any self employed person is. However, if you spread bet in addition to another job, then this should be tax-free.

 

However, trading via a regular forex broker (although it is not tax free), does have a lot of benefits. The prices are much more stable (which is vital for a trader), and the spreads are also usually tighter. In summary, a regular online forex broker that uses an MT4 platform is a much better vehicle for trading, and will allow you to be more profitable in the long term. However, as mentioned, many people are put off this by the fact that it is not tax-free. This seems to me to be something of an oversight.

 

The reason I say this is because everyone in the UK currently gets a 10,400 GBP allowance for capital gains per year. If you make over this amount in capital gains, then you will be liable to pay either 18% or 28% (depending on your income) in capital gains tax for anything over that amount. However, very few traders are going to get close to these kinds of profits in their first few years, so to me, to begin with at least, it makes sense to stay away from spread-betting platforms and stick with a good online broker with an MT4 platform.

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