How Forex Trading Impacts Your Tax Obligations

by Mike on April 28, 2016

How Forex Trading Impacts Your Tax Obligations

There is absolutely no doubt that the Forex markets can provide you with a sustainable source of income over time. Whether you are entering into trades in order to enjoy short-term profits or you instead are attracted to the notion of long-term wealth, there are a number of choices at your disposal. These are then further enhanced through the use of streamlined trading systems such as those which are only available at CMC Markets. However, we also need to gain a working knowledge of the tax obligations that you may (or may not) face in regards to these profits. Let us break this topic down into a few easily digestible sections.


When Are You Not Obligated for Tax Payments?

The only concrete area which is not concerned with tax obligations is associated with the practice of spread betting. This arises from the fact that the HMRC considers such bets as a form of “gambling”. Under the current BIM22017 exemption, you can enjoy tax-free earnings if you decide to employ spread betting as a primary source of Forex trading.

Additionally, part-time traders may likewise be under no obligation to file a tax return. This is a rather grey area and will primarily depend upon how many times you trade per week, the overall profits accrued and any other sources of additional income (such as a full-time job).


When Will You Need to File?

The HMRC observes that anyone who trades on a full-time basis or lists Forex investments as a primary source of income will need to pay capital gains tax. This is where it can become slightly confusing, for those who spread bet and earn massive amounts could still be liable for capital gains tax (even with the exemption mentioned in the previous paragraph).

In most cases, the trader will be required to file a self-assessment form and declare all winnings at the end of the tax year. We should appreciate that this may be beneficial. As opposed to the aforementioned exemptions, those who pay taxes can offset their losses through recorded profits. This can be an excellent way to mitigate many of the financial risks associated with the Forex markets.

A final area of concern revolves around CFD trading within the Forex industry. CFDs are known for tighter spreads and as a result, the broker is not obligated to pay any betting duty. The downside here is that the investor will likely be liable for capital gains tax. This is especially the case if one’s earnings exceed £10,000 pounds during any given tax year. Full-time CFD traders may also be required to pay income tax as opposed to capital gains tax alone.


As we can see, the rules and regulations tend to be quite intricate in terms of taxation and the Forex markets. It is always wise to consult with a financial professional to determine whether or not you will be obligated to report your earnings to the HMRC in the future.


***Image thanks to Alf Melin***

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