Contracts for Difference Tax Implications

 Go back to Bed and Breakfasting - Contracts for Differences

Minimising the tax burden for full-time traders - CFDs

The IR will always take the view that if ALL your income is from trading or at least a very, very high percentage of it is, then that is the source of your 'income' and as such it should be taxed as 'income' rather than as 'capital gains'.

Now it does take some time for them to get to this point if it is actually relevant to you - if they ever do. Perhaps it might depend on how you or your agent present your affairs and even the presentation of your own tax return supporting schedules.

Mostly I would think, we all have "other income" and so if this IS the case, our spreadbetting is 'betting' and thus tax free. Our CFD trading is taxed as 'capital gains' (if there are any gains) and all the CFD trades are taxed using the 30 day rule, because they are ordinarily liable to capital gains tax.

This 30 day rule does get to be extremely complicated and this is where it might be best to use an agent (accountant) for your tax return.

There are some apparently great, albeit complicated ways to avoid tax. Some carry higher risks than others and some are more complicated than others. They can involve "offshore schemes" with or without residential status, offshore registered companies that submit returns to other countries with more advantageous tax regimes, living on an 'always at sea boat' and lots more.

You'll find in life that just like with garage mechanics, there are good agents and bad agents. They are 'professionals' and charge by the hour. Perhaps they have a vested interest in being specialists in an area of work for you, which they have suggested to you, and can maintain and sustain for you. Do try to make sure they are actually acting for you and not for themselves.

Some of the tax avoidance schemes provided for clients work under the umbrella of trying to persuade the client that, just "Because it has been set up like that, well, that's why you don't have to tell the tax man about it." Of course this sort of scheme might as well not exist if it is taking you into the realms of mere tax evasion with the use of such a 'daft false cause' rule. This kind of stuff is for fools and is just plain ridiculous!

Throughout life, I've found it best never to let the tax dog wag your tail. If you can just about get it rationalised, and it really isn't too difficult, it is an absolutely fabulous thing to have a £4m tax bill every year. This would mean that you get to keep the other £6m. Things could have been worse and once upon a time in the UK it really was. Income Tax was 83% and Unearned Income Surcharge, for any annual capital gains on top of it, was a further 15% - making an annual taxation total of 98%.

Best advice I can give you is to employ an accountant to do your accounts, and provide advice and assistance - but forget the audit - (Many accountants consider a full audit a waste of time! I use Trio accountants myself. Their site is http://www.trioacc.co.uk. They are based in Cheltenham and will do a short report on each persons' circumstances for a fee of £195 plus vat from memory.