At the time of writing, the HM Revenue & Customs (HMRC) position on Spread Betting is that gains are generally not subject to tax. Any income is treated effectively as gambling income – because no assets are physically traded. However, this is not always the case 100% of the time; HMRC will try to tax individuals for whom ‘gambling’ forms part of their ‘trade’. Thus, if you are trading spreads and are also a professional stock broker or trader, the income would very likely be subject to tax.
The majority of spread betters are effectively part-time, so you almost certainly don’t need to worry about this HMRC position. You will need to think carefully about this position however if you choose to enter this sphere on a full-time basis. If you do choose to trade on a full-time basis, and if HMRC deem your ‘trade’ to include spread betting, you will very likely be liable for capital gains tax (CGT) on any profitable trades that you make.
Each UK individual has an £11,000 CGT exemption – meaning that the first £11,000 of realised gains will be free of capital gains tax. Beyond this exemption, tax will be applied at your marginal capital gains tax rate – which will probably be around 28%.
There are currently no CGT tax breaks available to spread betters, though this may not be the case indefinitely. The UK Government introduced the Innovative Finance ISA in April 2016, to act as tax shelter for new forms of finance. The initial iteration of the “IFISA” covers certain types of crowdfunding (specifically, Peer-to-Peer lending). Over time it is widely expected that the Government will choose to extend the remit of the ISA to cover other forms of modern finance (starting with other debt-based crowdfunding activities). It is certainly not beyond the realms of possibility to imagine that the Government may choose to include income from spread betting within the new Innovative Finance ISA, though at present it is understood that there are no immediate plans to bring this form of investing under the IFISA banner.
An Overview of the Innovative Finance ISA
If the Government were to do this, then holding an IFISA would potentially allow Spread Betters to invest up to £15,240 under a tax-free wrapper, with no consequences for either income tax or capital gains tax. However it is likely that the majority of investors would be sensible to spread their annual £15,240 ISA allowance across a range of investment vehicles (the Cash ISA, Stocks & Shares ISA and Innovative Finance ISA share a common annual limit – they are not separate).
We will update this page with news of any updates to the Innovative Finance ISA remit. For the time being, it is not likely that Spread Betting will be covered by the IFISA, though it is impossible to say with any certainty whether or not the Government will subsequently elect to include this form of investing within the new tax-free wrapper.