Spread betting to avoid CGT

DoctorStrange

Hi

My ISA is full and my intention is to keep investing the max each year. 

I'm looking to invest further funds, but these will not be in any wrapper and so subject to CGT, which is what leads me to spread betting.

Assuming the underlying investment is the same (i.e. no leveraged exposure) and the same timeframes are used,  are there any advantages to buying unwrapped funds/shares versus spread betting?

I'm not too fussed about "ownership" of the underlying shares and would be happy with the risk of the provider going bust. 

As such, it seems to me the speed of execution and tax benefits offered by spread betting make it a better choice than unwrapped shares/funds, but I'd like to know what everyone else thinks 

Jeremy535897

Spread betting is typically much higher risk, particularly if you get into leveraged positions and/or short positions. That is probably why it is almost always tax free for individuals, like gambling. HMRC know they would hand out much more in tax relief on losses than they would take in tax on profits.

DoctorStrange

Yeah,  so as long as the investor is disciplined and makes the same bet they would have done in unwrapped shares/funds (I.e. no leverage and no shorts) then the advantages outweigh the disadvantages in my book. 

I'm unsure why I'd buy a FTSE 100 fund or ETF now  when I can get the same results via spread betting with less paperwork, for example 

Jeremy535897

The traditional investor bought shares to hold long term, with the expectation of growth over a period, and dividends along the way. Spread betting is a short term gamble. I can understand that if you want to gamble, it is easier to avoid doing it with the underlying assets.

DoctorStrange

It doesn't have to be short term though

If I want to buy and hold specific stocks, can't I do that just as easily via the spread bet as via the share purchase?

And dividends seem to be paid via both methods, so total return should be the same?

Jeremy535897

I am no expert, but what I think of as spread betting involves gambling on share price movements, not owning shares.

DoctorStrange

I do agree that's how they're mostly used and if all things were equal I'd ignore the spread betting. But as capital gains and dividends are taxed differently, things are not equal.

Owning shares is still a gamble on the share price, and the economic risks between "betting" or "investing" are identical.

So it seems to me the only difference is the tax situation?

But then I'm no expert either,  hence looking to see what it is I'm missing! 😀

Jeremy535897

DoctorStrange said:

I do agree that's how they're mostly used and if all things were equal I'd ignore the spread betting. But as capital gains and dividends are taxed differently, things are not equal.

Owning shares is still a gamble on the share price, and the economic risks between "betting" or "investing" are identical.

So it seems to me the only difference is the tax situation?

But then I'm no expert either,  hence looking to see what it is I'm missing! 😀

I suggest you look into the realities of spread betting further. The reason you don't pay capital gains tax on spread betting profits is because you don't actually own anything other than the right to receive a monetary sum if the share price moves in the way you bet.

maxsteam

DoctorStrange said:

As such, it seems to me the speed of execution and tax benefits offered by spread betting make it a better choice than unwrapped shares/funds, but I'd like to know what everyone else thinks 

There are lots of sites comparing CFDs and spread betting. One difference is that you can carry CFD losses forward to offset against future gains. Your choice might depend on whether you expect to make a profit. If you start trading in something that is new to you, you should expect to make a loss in the first year.

There are many dodgy brokers out there who will let you take out leveraged positions without ensuring that you understand what you are doing. There are also brokers who's techniques for taking funds have been tried and tested with gamblers.

My advice, if you have not held specific stocks previously, is to do nothing more than buy a couple of FTSE stocks with a mainstream broker, pay the stamp duty and hold them for a few years before even considering CFDs or spread betting.

If you choose the wrong platform you could end up paying a spread that is five or ten times what you would pay on a mainstream platform. My opinion is that it is far more important to choose a good broker than to worry about avoiding tax or whether CFDs are better than spread betting. There are some extremely bad firms operating in the spread betting market.

DoctorStrange

Jeremy535897 said:

DoctorStrange said:

I do agree that's how they're mostly used and if all things were equal I'd ignore the spread betting. But as capital gains and dividends are taxed differently, things are not equal.

Owning shares is still a gamble on the share price, and the economic risks between "betting" or "investing" are identical.

So it seems to me the only difference is the tax situation?

But then I'm no expert either,  hence looking to see what it is I'm missing! 😀

I suggest you look into the realities of spread betting further. The reason you don't pay capital gains tax on spread betting profits is because you don't actually own anything other than the right to receive a monetary sum if the share price moves in the way you bet.

I don't see much risk here provided you use an established broker like IG Index. 

What does "owning" a share actually give you other than a P&L on the share price alongside a dividend?

The tax benefits outweigh voting rights etc in my opinion.

DoctorStrange

maxsteam said:

DoctorStrange said:

There are many dodgy brokers out there who will let you take out leveraged positions without ensuring that you understand what you are doing. 

My advice, if you have not held specific stocks previously, is to do nothing more than buy a couple of FTSE stocks with a mainstream broker, pay the stamp duty and hold them for a few years before even considering CFDs or spread betting.

I wouldn't be using leverage,  simply using the bet to gain exactly the same exposure as investing directly

On your second point,  what's the difference between buying and holding RDS or HSBC via shares, or opening the the same position via a long bet?