Are profits from Forex trading taxable?

Maxsun

I was looking at Moneycorp where you can buy and sell currency on line and I was wandering, if you do this regularly and end up clocking up a profit are you tax liable for it?

The easy answer is "most likely" but I'm trying to find out some details...

Thanks

BLB53

Here's a link to an article on the iii website. I have a feeling its similar to spread betting and any gains are tax-free.

http://www.iii.co.uk/articles/19466/10-tips-trading-forex

MoneySaverLog

If it's spreadbetting/Forex trading where you're trading one currency against the other e.g. GBP/USD, EUR/USD, USD/YEN etc then it's tax free and extremly risky.

Loughton_Monkey

Trading forex through CFD's is fully taxable, while trading the same through Spread Betting is not.

MoneySaverLog

Why would anyone trade forex through CFD's though? May as well spreadbet.

sabretoothtigger

Spreadbetting isnt tax free if its your 'job'

Companies trade CFD as its cheaper on bulk. Currency can be held in ETF also such as FXE Im not sure if that is allowed in an ISA. Gains on british currency such as gold sovereign is not taxable I believe, not sure about foreign currency

MoneySaverLog

sabretoothtigger wrote: »

Spreadbetting isnt tax free if its your 'job'

If that was the case then you should be able to offset your losses against profit.

As most people lose more than they win, I doubt the IR would agree to that. They cannot have it both ways.

It is betting, therefore it's tax free whether it be your sole income or not.

chewmylegoff

Gains on foreign currency are liable to capital gains tax unless you bought the foreign currency for your own personal use. So, if you transferred a load of cash into a euro account and the euro strengthened against the pound, and then you transferred it back into sterling, a gain would arise that would be subject to CGT. You have a £10k annual limit.

Gains on spread-betting are tax free regardless of the underlying.

In answer to the question - why would you want to trade forex CFDs - the flip side of spread-betting not being taxable, is that the losses are not tax deductible either. if you wanted to take a position to hedge another taxable position, then you would prob want to use a CFD, so that any losses you incurred on the CFD could be offset against an increase in the taxable position you are hedging against. also, if you are not doing much of it, and you don't have other chargeable gains elsewhere, your annual CGT allowance negates the fact that spread-betting is tax free.

chewmylegoff

MoneySaverLog wrote: »

If that was the case then you should be able to offset your losses against profit.

As most people lose more than they win, I doubt the IR would agree to that. They cannot have it both ways.

It is betting, therefore it's tax free whether it be your sole income or not.

if your main income is derived from spread-betting then HMRC may consider you to be a self employed day trader and your net profits from spread-betting over the course of the tax year would be subject to income tax (not CGT). it's a bit of a grey area though, but technically if you derived all of your income from betting on the dogs at ladbrokes, that would be a taxable income too.

MoneySaverLog

So CFD's are really used for hedging then.

MoneySaverLog

chewmylegoff wrote: »

if your main income is derived from spread-betting then HMRC may consider you to be a self employed day trader and your net profits from spread-betting over the course of the tax year would be subject to income tax (not CGT). it's a bit of a grey area though, but technically if you derived all of your income from betting on the dogs at ladbrokes, that would be a taxable income too.

I asked a major spreadbetting firm the very same question and the way they explained it was that it was tax free, as you could not offset losses against profit. Also they said as it is betting then it would be tax free.

Not that I ever achieved that goal of day trading for a living, I ended up losing a lot on spreadbetting in the past so stay away from it now. But I do understand that very few people do actually make a successful tax free living from it.