Spread Betting is cheaper than holding shares!

pink_princess

Couldn't agree more, trading sports prices is treat like a taboo subject on MSE. I've never got why it is viewed by MSE towers as so much worse than stocks & shares.
As long as people understand the pitfalls they should be able to dicuss it in the same way.

sabretoothtigger

Most spread betting firms withhold up to 20% from the 'dividend' as 'tax'. so possibly 10% less than from holding the shares directly.

Is there anyone in the uk who can receive a dividend without giving 20% to government. I thought this was Browns law and a reason why all our pension funds are worse off despite being tax protected, actually they arent

How is the sb firm going to pay out something they cannot receive themselves


In my experience the cost of borrowing will almost always exceed the dividend yield, so it would be silly to hold on that basis for any duration.
If you spreadbet you are a short term capital speculator, investing via shares when dealing costs can be as low as 1.50 is very hard to beat so that just leaves the idea of trading

cepheus

ArkWelder

You make a valid point in your first paragraph about dividends. Those with longer term holdings may wish to use a SB company which credits the full 90%. However, on the plus side even the dividends are beneficial for higher tax payers who have to pay 32.5 or 42.5% with conventional shares, and they also receive them more quickly on the XD date!

I can't see the relevence of the remainder of your post since it was clearly bolded in the OP providing you carry out the equivalent trade.

My only experience with share dealing stops was with Comdirect many years ago. All they did was automate it, so if it was below the NMS it just failed and they ignored it! A spread betting company would be hung drawn and quartered if they ignored a stop entirely for that reason.

Missing stops due to slippage equally applies to a share dealing company, in fact spread betting companies offer guaranteed stops albeit at a cost.

Sabretooth Dividends from shares are explained here

Ark_Welder

cepheus

I have no objections to discussion about spread betting or any other form of capital-at-risk strategies - gilts, for example.

What I wanted to do is to put something forward for anyone that reads the thread and cottons on to 'the myth that spread betting is any different or dangerous than equity investing' and doesn't delve any further. Sometimes, there are those on here that do ask basic questions about such things as cash ISAs. That is a problem with an open forum like this - a broad audience.

Perhaps the importance of stops and what happens in slippage situations are points to be expanded? [edit] Also the term 'leverage'?


Thanks for replying to sabretooth, re dividends

Linton

sabretoothtigger wrote: »

Is there anyone in the uk who can receive a dividend without giving 20% to government. I thought this was Browns law and a reason why all our pension funds are worse off despite being tax protected, actually they arent

There appears to be much misunderstanding on this. Clearly shared by the poster.


There is NO tax on dividends for standard rate tax payers. What happens is...

1) Companies pay dividends out of taxed income
2) HMRC for some reason I dont understand deem that 10% tax has been paid on the dividends (which it hasnt) and so provide a credit note. They then charge the receiver of the dividend 10% which balances out the tax credit, so no money changes hands.
3) What used to happen was that for pensions the non-existent 10% tax on dividends was refunded to the pension holder, thus arguably subsidising the pension. This 10% was what Gordon Brown stopped.
4) So its 10% not 20% but it's not paid to the government anyway. For pensions it only affected dividends paid into pensions. Much pension investment doesnt attract dividends.

Eco_Miser

Linton wrote: »

There appears to be much misunderstanding on this. Clearly shared by the poster.


There is NO tax on dividends for standard rate tax payers. What happens is...

1) Companies pay dividends out of taxed income
2) HMRC for some reason I dont understand deem that 10% tax has been paid on the dividends (which it hasnt) and so provide a credit note. They then charge the receiver of the dividend 10% which balances out the tax credit,
Surely this charge is the 10% tax on dividends which standard (and zero) rate taxpayers pay? so no money changes hands.
3) What used to happen was that for pensions the non-existent 10% tax on dividends was refunded to the pension holder, thus arguably subsidising the pension. This 10% was what Gordon Brown stopped.
4) So its 10% not 20% but it's not paid to the government anyway. For pensions it only affected dividends paid into pensions. Much pension investment doesnt attract dividends.

See note in red above.

Ark_Welder

From cepheus' earlier post, Dividends from shares are explained here, see the 'Understanding the Dividend Tax Credit' section. Also Wiki: UK Corporation Tax, the intro and the Advance Corporation Tax sections for more on the whys and wherefores of the tax credit.

IronWolf

Firstly your assertion that you can just put the underlying balance in bonds is falacious. If the market moves against you the spreadbetting company will demand additional capital to cover losses, and you could get margin calls.

Secondly, spreadbetters are not unknown to close out positions without the account owners consent, if they consider your capital cover inadequate. This can force you to take huge losses which isn't a risk for a shareholder.

Thirdly, if the company becomes insolvent a spreadbetter has no claim to the companies assets. Its problematic when there are mergers and stock splits. You get no voting rights in the company AND if the spreadbetting company becomes insolvent you could lose your entire position.

sabretoothtigger

2346.00 - 2347.50 (GBX) at 14:04:40
on Market (LSE)

Spreadbet quote




Spreadbet
400 shares buy x 23.49 = 9397.36
400 shares sell x 23.43 = 9374.6
Cost is 22.76 + 1 pound finance cost every day

Shares
9390
9384
Cost is 6 pounds + 10 for dealing and 46.95 in stamp duty
Total 62.95



Same again but with 50 shares of BHP would cost 2.845 vs 16.61



So I was wrong at least on major companies. For holding under a month, shares is not really anywhere better


I could have sworn div tax is more then 10% but I dont remember seeing an explicit record.
Maybe I can check later my old Shell share payments vs what the company states it paid and see what % difference

09 Sep 2009 ROYAL DUTCH SHELL 05 Aug 2009 0.2559p
09 Dec 2009 ROYAL DUTCH SHELL 04 Nov 2009 0.2565p
17 Mar 2010 ROYAL DUTCH SHELL 10 Feb 2010 0.2636p
09 Jun 2010 ROYAL DUTCH SHELL 05 May 2010 0.2737p
08 Sep 2010 ROYAL DUTCH SHELL 04 Aug 2010 0.2689p
17 Dec 2010 ROYAL DUTCH SHELL 03 Nov 2010 0.2672p

cepheus

IronWolf wrote: »

Firstly your assertion that you can just put the underlying balance in bonds is falacious. If the market moves against you the spread-betting company will demand additional capital to cover losses, and you could get margin calls.

I actually said bank account or bonds. The figures used for default reflect the best instant access rates. Yes you would only use a bond if you wanted to limit your loss to the spread betting deposit, or had accessible funds elsewhere. It is a god idea to keep liquid funds available for a variety of reasons anyway.

IronWolf wrote: »

Secondly, spreadbetters are not unknown to close out positions without the account owners consent, if they consider your capital cover inadequate. This can force you to take huge losses which isn't a risk for a shareholder.

A competent spread betting company should give you adequate warning. They offer far better real time alert and monitoring facilities than with conventional stockbrokers. Of course stop losses can be a double edged sword. It is always safer to treat a running loss as being a real loss. Your bank account only consists of electronic numbers until you realize it!

IronWolf wrote: »

Thirdly, if the company becomes insolvent a spread-better has no claim to the companies assets. Its problematic when there are mergers and stock splits. You get no voting rights in the company AND if the spread-betting company becomes insolvent you could lose your entire position.

As with the dividend issue this might be a valid difference for some companies, it depends on the conditions, but does it amount to much after allowing for the probability of insolvency of the larger companies used for spread-betting, and the amount likely to be returned? What about share nominee accounts don't they have the same problem?