Is Spread Betting Tax Free?

Spread betting has become popular in recent years, enabling retail traders to potentially generate large profits without owning the asset they are speculating on, such as gold or crude oil. But one question that many spread bettors ask is this: is spread betting tax free?

On the face of it, the answer is yes: many of the taxes that are levied on other forms of investment methods are not levied on spread bets. This is true for capital gains tax and stamp duty – and also, in most cases at least, for income tax.

But unsurprisingly, the situation is a little more complex than it seems at first glance. This guide will explore the topic in detail and look at whether spread betting can make investors non-taxable profits. Read on to find out whether spread betting is tax free in 2024.

Note, this article does not constitute professional tax advice. Speak to an accountant for specific guidance.

Spread Betting Brokers

#1 - Spreadex

Why We Chose Spreadex

Trade on thousands of financial markets with a bet size from £0.01 and the best margin rates in the industry. Spread bets are tax free in the UK, and Spreadex traders can access the markets via three slick proprietary trading platforms.

"Spreadex will appeal to UK day traders who are interested in both spread betting on financial markets and placing traditional bets on sports events. Fees are low on short trades and profits are tax-free on spread bets. There's also a powerful proprietary charting platform, plus £0 minimum deposit required to get started. "

- DayTrading Review Team
  • Instruments: Forex, CFDs, Indices, Commodities, Stocks, Crypto, Bonds, Interest Rates, ETFs, Options, Spread Betting
  • Regulator: FCA
  • Platforms: Spreadex Platform, TradingView
  • Minimum Deposit: £0
  • Minimum Trade: £0.01
  • Leverage: 1:30

#2 - AvaTrade

Why We Chose AvaTrade

AvaTrade continues to offer spread betting for UK traders via the MT5 platform, with zero tax on profits. There are no extra currency conversion fees on any asset and leverage is available up to 1:30. You can also practice in the free demo account.

"AvaTrade offers the full package for short-term traders. There is powerful charting software, reliable execution, transparent fees, and fast account opening with a low minimum deposit."

- DayTrading Review Team
  • Instruments: CFDs, Forex, Stocks, Indices, Commodities, ETFs, Bonds, Crypto, Spread Betting, Futures
  • Regulator: ASIC, CySEC, FSCA, ISA, CBol, FSA, FSRA, BVI, ADGM
  • Platforms: WebTrader, AvaTradeGO, AvaOptions, AvaFutures, MT4, MT5, AlgoTrader, TradingCentral, DupliTrade
  • Minimum Trade: 0.01 Lots
  • Leverage: 1:30 (Retail) 1:400 (Pro)

#3 - Pepperstone

Why We Chose Pepperstone

Pepperstone extends financial spread betting services to both retail and professional traders, enabling you to speculate on forex, indices, shares, and more. Additionally, Pepperstone offers comprehensive training resources if you are new to spread betting, helping to facilitate your journey into this tax-efficient form of trading. Pepperstone also now offers spread betting on TradingView, making it one of a handful of brokers that provide this service.

"Pepperstone stands out as a top choice for day trading, offering razor-sharp spreads, ultra-fast execution, and advanced charting platforms for experienced traders. New traders are also welcomed with no minimum deposit, extensive educational resources, and exceptional 24/7 support."

- DayTrading Review Team
  • Instruments: CFDs, Forex, Currency Indices, Stocks, Indices, Commodities, ETFs, Crypto, Spread Betting
  • Regulator: FCA, ASIC, CySEC, DFSA, CMA, BaFin, SCB
  • Platforms: MT4, MT5, cTrader, TradingView, AutoChartist, DupliTrade
  • Minimum Deposit: $0
  • Minimum Trade: 0.01 Lots
  • Leverage: 1:30 (Retail), 1:500 (Pro)

#4 - CityIndex

Why We Chose CityIndex

Spread bet on thousands of global markets with no commissions and tight, fixed spreads.

"City Index is best for new and intermediate traders looking for a wide selection of assets on user-friendly platforms."

- DayTrading Review Team
  • Instruments: CFDs, Forex, Stocks, Cryptos, Options, Commodities, Bonds
  • Regulator: ASIC, FCA, MAS
  • Platforms: MT4, TradingView, TradingCentral
  • Minimum Deposit: $0
  • Minimum Trade: 0.01 Lots
  • Leverage: 1:30 (Retail), 1:50 (Accredited Investor), 1:200 (Sophisticated Investor), 1:300 (Wholesale Investor), 1:400 (Professional Trader). Varies with jurisdiction.

#5 - Trade Nation

Why We Chose Trade Nation

Trade Nation offers competitive spread betting conditions and transparent fees on hundreds of assets. On the proprietary platform, spread betters also enjoy a user-friendly and customisable interface.

"Trade Nation is a good choice for newer traders looking for a wide range of financial markets on a user-friendly platform. There is no minimum deposit, free funding options and strong education."

- DayTrading Review Team
  • Instruments: Forex, CFDs, Indices, Shares, Commodities, Futures, Bonds, Cryptos (Bahamas Entity Only)
  • Regulator: FCA, ASIC, FSCA, SCB, FSA
  • Platforms: MT4
  • Minimum Deposit: $0
  • Minimum Trade: 0.1 Lots
  • Leverage: 1:500 (entity dependent)

Spread Betting Tax Headlines

Spread Betting Tax Implications

Firstly, is worth understanding what spread betting is…

Spread betting is a leveraged financial product and derivative. It is an intangible bet – ownership of assets do not change hands. Spread bets also come with high risk but potentially high rewards.

Yet when considering the tax implications, it is important to separate spread betting from similar forms of investing. It is often confused, for example, with trading CFDs (Contracts for Difference). But profits from CFDs are usually taxed under capital gains tax rules, whereas spread betting profits are not. The way that profits are calculated on each type of financial product is slightly different.

Is spread betting tax free during inflation?
Spread Betting Example. Credit: City Index

Spread Betting Taxes Breakdown

There are a variety of taxes to think about before spread betting. Most traders will probably jump to the conclusion that the only one they need to think about is income tax – but the reality is that retail trading is complex, and it can activate many aspects of the taxable system that the average investor may not have considered.

Capital Gains Tax

The most obvious potential charge is perhaps capital gains tax, known as ‘CGT’. But qualifying returns made from financial betting are not liable for this tax, which given that it can, in some cases, have a 20% rate, is a good thing.

So is spread betting tax free when it comes to capital gains? Yes.

Stamp Duty Tax

Those who have become land owners and bought and sold properties will be familiar with stamp duty tax. Stamp duty generally applies to more assets than just property, and some aspects of stock trading fall into its sphere of liability, especially under stamp duty reserve tax (SDRT). Luckily though, spread betting profits do not.

This is because spread betting products are actually derivatives that track the asset in question, and do not confer any ownership of the underlying asset. So while it might appear that you’re trading Meta stock, for example, what you’re actually doing is investing in a financial product that tracks the stock’s value and delivers profit or loss based on how the share price performs. From a tax perspective, therefore, spread betting is arguably better as it does not give rise to a tax liability.

So is spread betting tax free when it comes to stamp duty? Yes.

Income Tax

It is also important to consider any income tax implications when spread betting. This is where the exact definition of ‘betting’ comes into play.

Spread betting is, for income tax purposes, treated as gambling – which means that profits do not give rise to a liability.

The Money Advice Service does, however, caution that this might change in the event that a person relies on their income from spread betting to earn a living. In that case, it could be re-categorized as ‘trading’, which could mean there is income tax to be paid.

For that reason, it is worth consulting a tax professional if you execute a higher number of spread bets versus lower volume investors as this might push you into the ‘trading’ category, especially if your profits are high.

Your tax percentage will also depend on the income zone you are in. A high earner will need to pay more depending on the total value of their received (liquid) income.

So is spread betting tax free when it comes to income tax? Yes – unless spread betting profits are your primary source of income.

Is spread betting tax free on savings?

Offsetting Spread Betting Losses

So far, this article has investigated only whether or not the profits earned by spread bettors are taxable.

But what about losses? In some circumstances, losses made through trading can be treated as tax-deductible – which means that they can be offset (hedged) against other taxable profits made in other ways, bringing down the overall tax liability of the individual.

It is not, however, the case that spread betting losses can be used in this way. So while tax efficiency is the order of the day when it comes to profitable returns, a trader can’t bank on their spread betting losses being used to reduce the overall amount of tax they owe.

A useful tip for offsetting taxes on other trading products is to keep a journal. This will help collate key figures and information that can be used when filling in your tax return at the end of the year.

Individual – And Changing – Circumstances

Currently, the situation for most traders is that spread betting is quite tax-efficient. But there are two important notes of caution.

The first is that, as with almost all taxes, the individual’s circumstances are relevant alongside the wider tax rules. As the point about income tax above demonstrates, whether a person is using spread betting to generate a full-time salary versus part-time speculation varies.

Also, a quick 10 percent monthly yield can easily become vatable if the valuation of your earnings bypasses the income limits set in your region. So tax-free spread betting might not be a long-term solution. As a result, it is important for anyone who is spread betting to seek independent advice from a qualified tax professional before they proceed with gambling on an online platform or exchange.

Secondly, traders should keep an eye on any changes to the government’s approach to spread betting tax treatment. Just because capital gains tax, for example, is not levied on profits right now, does not mean that it never will be. This could change in 90 days, 6 months, per year, or even in 5 years’ time.

Finally, it is the responsibility of the taxpayer to check whether or not rules apply to them, so it may be worth periodically doing some research and keeping an eye on annual tax and budget announcements.

Is Spread Betting Tax Free?

Spread betting is a great choice for many traders, not least because profits are usually treated as gambling returns and therefore do not incur a tax liability. With that said, the circumstances of each individual make it prudent to check with a professional tax advisor early on. Also, there is no guarantee that tax laws won’t change in the future.

But to answer the key question: is spread betting tax-free? The answer is yes for the majority of individuals.

FAQ

Do You Have To Pay Income Tax On Spread Betting?

If you don’t rely on profits from spread betting as a primary source of income, it is usually considered gambling and doesn’t give rise to a tax liability. However, you may need to check with an accountant for the exact laws applicable in your region and to your circumstances.

Why Is Spread Betting Tax Free?

Spread betting is normally considered gambling, so if you don’t make enough for it to constitute a significant source of income, it is usually a non-taxable way of speculating on popular financial markets. With that said, the rules vary globally, from England and Jersey to Australia.

Is Forex Spread Betting Tax Free?

Spread betting on currency is usually tax free. This is also the case when spread bets are placed on other markets, such as cryptos and bonds. Note, this is different to the traditional buying and selling of stocks, for example, where individuals get paid dividends and may need to pay tax.

What Countries Is Spread Betting Tax Free?

Spread betting is legitimate and not taxable in the UK and Ireland – profits are free from tax liabilities. This means local tax authorities, such as HMRC, do not ask for a proportion of your winnings. With that said, keep up with the latest regulations regarding this type of gambling because laws can change. Also contact an accountant if you are unsure whether you owe tax on spread betting profits.

Spread betting is legal in several countries, including the UK and Ireland. However, the financial product is banned in other regions, including South Africa, Canada, Zambia, Zimbabwe, the US, Germany, France and Japan. Here, investors will need to use other instruments such as CFDs, futures, and options.

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