Spread Betting is free of capital gains tax in the UK based on an HMRC ruling that class spread betting as a speculative bet rather than an investment. A spread bet is also free of stamp duty as the product is a derivative, hence traders never receive the asset making them exempt (unlike share trading). This is why spread betting is a more attractive method of speculating on the financial markets than traditional forex or CFD trading.
What Are The Spread Betting Tax Benefits?
There are three tax benefits UK residences benefit from based on HMRC rulings compared to CFD trading which are:
1. No Capital Gains Tax
There are no capital gains taxes to concern yourself with when spread betting. Your profits are exempt from CGT, so you can keep all your spread betting profits. This alone can save you up to 20% in trading costs per year on your profits.
2. No Stamp Duty
You do not hold the underlying asset because spread betting is a derivative product. Therefore, you do not pay stamp duty tax, reducing your trading costs over time (currently 0.5% per purchase).
3. Commission-Free Trading
Apart from not paying taxes, you do not have to pay commission fees. This no-commission spread betting works by factoring in the cost of opening your trade into the spread. A spread is the difference between the buy and sell price, so if the buy price of EUR/USD is 1.0604 and the sell price is 1.0605, the spread will be one pip.
There are, however, a couple of exemptions to the no-tax rule to be aware of:
- If you spread bet professionally, and it is your only source of income, then you will be subject to income tax.
- If you have opened a limited company and trade through the company, then the HMRC considers this a trading activity of the company. Therefore, it becomes taxable on profits through corporation tax.
Pro and Cons Table For Spread Betting Taxes
In general, there are many spread betting advantages, including leverage trading, a wide variety of markets to bet on, and low trading fees. However, one of the main benefits is the exemption of capital gains and stamp duty tax.
| Pros | Cons |
| Do not pay capital gains tax | Cannot offset your losses against your tax |
| Do not pay stamp duty tax | If spread betting is your sole income, you may be charged income tax |
| Do not pay dividend tax |
Although these are benefits, you should also consider the cons of tax-free spread betting – especially if you are a professional spread bettor or spread betting is your sole income.
What Is Spread Betting?
Spread betting is a method of trading the markets that allows you to speculate on the price movement of a financial market without owning the underlying asset. It allows you to profit from rising and falling markets by going long (to buy) or short (to sell) the market, making it an attractive financial instrument for day trading.
View our full spread bet guide to learn more about this form of trading in the UK.
How Are CFDs And Spread Bets Taxed In The UK?
Spread betting and CFDs are very similar, yet they differ in how each is taxed. The reason is that CFDs are not defined as gambling since there is the exchange of a contract. Below is a table I put together to show the differences in how they are taxed:
| Tax Type | Spread Betting | Share Trading |
|---|---|---|
| Capital Gains Tax (CGT) | 0% | 10 - 20%* on profits |
| Claim Losses Against CGT | 0% | Yes |
| Stamp Duty | 0% | 0.5% |
| Dividend Tax | 0% | 8.75 – 39.35%* |
*Subject to income tax band.
Why In The UK Don’t They Tax Spread Betting?
The UK is one of the only countries worldwide not to tax financial spread betting, and that is due to how the product is structured and classified by the HMRC, which regulates spread betting taxes.
1. The HRMC Considers It Gambling
According to the HMRC tax law, and it states that because there are “no assets [are] acquired or disposed of”, spread betting is exempt from capital gains tax. It considers that spread betting, you are gambling on the future direction of prices, compared with other assets you are buying and selling financial products like futures, options, and trading CFDs.
2. The HRMC Considers It A Derivative
Derivatives do not involve a purchase (or receive) of an asset when issued; therefore, the HMRC declares spread betting exempt from stamp duty liability. This means you do not have to pay 0.5% stamp duty tax when you purchase a spread bet on any market like you would do with traditional share trading.
Spread Bet Tax-Free Example: Stocks
Below, I’ll demonstrate a spread betting example highlighting the tax benefits compared to traditional market speculations.
Example of Spread Betting Stocks (Tax-Free):
You do not pay any stamp duty because you are spread betting and not receiving a contract or shares to own, and you’ll only pay a spread to execute the bet. You purchase VOD shares at the buy price of 82p per share with a bet size of £10 per point, meaning you will make £10 for every 1p VOD rises above 82p.
The prediction you made is accurate, and VOD rises to 92p per share, rising 10p (or 10-points), which makes you £100 profit (10-point price move x £10 bet size per point). Because you used a spread bet, you do not have to pay capital gains tax.
If you chose to trade the shares traditionally, you would have had to pay:
Fees on purchasing shares:
- Stamp duty tax (0.5% of the asset value)
- Broker’s commission (typically 1.5% of the total trade size)
Fees on closing the shares in a profit:
- Broker’s commission (typically 1.5% of the total trade size)
- Profits liable to capital gains tax (up to 20% of the profits)
As you can see, spread betting has much lower overall trading fees than traditional trading forms. This depends on the broker’s trading fees hence we strongly recommend reviewing our UK spread betting platform page prior to choosing a broker.
FAQ
Which Countries Is Spread Betting Tax-Free?
Only the United Kingdom offers spread betting as tax-free as it is seen as a gambling product instead of an investment vehicle, making its winnings exempt from capital gains tax.
What Are The Costs Involved In Spread Betting?
Spread betting is one of the best methods of speculating on the financial markets with its low trading costs. You will only have to pay a low spread (from 0.5 pips on some brokers) if you close your position on the same day (before 22:00 UK time). If you choose to keep the position open during this time, the spread betting broker charges a rollover fee (interest charges on the amount you have as leverage) each night until the position is closed.
You can use a spread betting calculator to find the costs involved with your spread bet before you enter the financial market. This can give you a better outlook on trading costs to see if the risk-reward is acceptable.
Are Taxes The Same For Shares Trading And Spread Betting?
No, traditional share trading has stamp duty and capital gains tax because you purchase a company’s physical shares and receive a certificate of ownership. On the other hand, spread betting shares are exempt from paying capital gains and stamp duty because they are derivatives, and you do not physically receive any ownership of the shares.
Is Spread Betting Illegal?
Spread betting is not illegal and is available as a method of trading for many countries; however, in the UK, it is more popular due to its tax exemption status. Financial spread betting is illegal in some countries like the United States.
Ask an Expert
What happens if I’m spread betting while living abroad?
If you’re living abroad, you might be subject to local tax laws, so it’s best to check with a tax advisor.