Why are CFDs free of UK stamp duty?


Q.: Why are CFDs free of UK stamp duty?

A: Stamp duty is not payable as CFDs are simple an agreement between you and your CFD broker to swap the difference in price of an equity between now and some future date in the future rather than a sale. Thus, since you never really own any shares there's no 0.5% Stamp Duty when you buy (although of course you still have to pay Capital Gains Tax). This will save 0.5% when compared to a traditional share deal.

 

Q.: Will share CFDs in the UK and Ireland always be free of stamp duty?

A: Currently share CFDs are free of stamp duty in the UK and Ireland. However, in March 2006 the Irish Inland Revenue, which taxes 1% stamp duty on stock exchange transactions, stated that it was planning to spread out the tax to stock CFDs. But due to technological difficulties and strong outcries from Irish Stock Exchange officials probably persuaded the Inland Revenue that revenue from Ireland's CFD business (about €3bn a month in trading on the Irish exchange) would simply migrate to London if the stamp duty on share CFDs is imposed. Both jurisdictions may tax CFDs in various types of ways but any direct imposition of stamp duty would not likely hold in the courts. In any case, the financial industry believes that stamp duty on shares is an out-dated and anti-market tax which can only damage the future of the UK and Irish stock exchanges as financial centers, and would like to see it abolished. What is sure is that the United Kingdom's HMRC is watching its Irish brother's campaign with interest. The UK Treasury is not good at abolishing taxes, but is noted for its ability to invent new ones.


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