Determining Tax on Forex Trading

luke4737

Hello everyone,
I'm a PhD student with two babies, so to make some extra income on the side, I've decided to use some of my savings from when I was in the HM Armed Forces to generate some extra income by trading FOREX.

How would this be taxed though? I've read some sources that state that as ill be trading strictly FOREX, that this is spread betting, and in the eyes of HMRC this is non-taxable.

Would anyone be able to shed some light and clarify?

Thanks for your time.

lr1277

I have never done direct currency trading, however I have traded some currency pairs using CFD’s (Contracts for Difference). You need to pay Capital Gains Tax (CGT) if you make more than the CGT exempt amount.
You can trade currency pairs using spread betting. This is tax free as long as it is not your main source of income, is my understanding. In your situation I wouldn’t know how to define your main source of income; is it the grant/loan for your phd? Or is it nothing? Don’t know. You could ask HMRC or you might get an answer on the Savings board. Failing that, you could try the cutting tax board.
I chose CFD’s because I didn’t have an income, so I didn’t want to be looking over my shoulder waiting for HMRC to catch up with me for not paying income tax on spread betting. Having said that, I don’t know how HMRC would find out, but I would imagine they have systems/processes in place to catch evaders. The other advantage of paying CGT is that you can include losing trades which you can’t do with spread betting.
So if you choose spread betting you either need to do some research or take some risks that you won’t be caught, let alone the risks around the trades themselves.
i suppose I should mention that because it is forex, it is not automatically spread betting. You can trade forex, indices, commodities and individual stocks using spread betting; but you can also trade all the things using CFD’s.
i should also mention this is a very high risk strategy with a very high probability you will lose some or all your savings. If you are going to do this, please start with a demo account and see if this style of making money meets your needs.
HTH

lr1277

By meeting your needs, you need to consider the following (not an exhaustive list);
Your risk profile; how much are you willing to lose per trade if you are not profitable
How much time are you willing to put in? An hour a year/month/week/day or more than an hour a day
Are you going to be a fundamental trader where you look at the two economies concerned, their relative interest rates and other news? Or are going to be a technical trader where you look at chart patterns, the individual currency movements within a time period, the averages of the closing prices for a given time period.
How much self training/education are you going to do?

Some things for you to think about.