Tax and Forex Trading: What You Need to Know

| January 21, 2016

tax and forex tradingAny astute Forex trader is well aware that tax implications must always be considered alongside profits and losses. It is a foregone conclusion that the tax regulations within the United Kingdom should be adhered to and appreciating the stipulations put forth by the HRMC is critical to avoid potential penalties. While it is always prudent to seek the advice of a tax professional, we should nonetheless examine a few common areas to address.

Capital Gains Tax in Relation to Forex Trades

We should first realise that any type of speculation that results in a profit within the Forex markets is subject to a capital gains tax in the UK. However, it should also be noted that HMRC regulations state that every trader has a personal allowance of up to £10,000 pounds during any single fiscal year.

The Forex Forecast for 2016

2016 will certainly prove to be a busy year in terms of Forex trading. As a result of an increased global connectivity and a growing number of investors now entering into the lucrative sector, it is important to appreciate some of the main trends which

To put it simply, an income that falls below this threshold will not be subject to CGT. There is nonetheless another stipulation to be mentioned. These profits are not considered taxable as long as one is using the Forex markets to supplement his or her normal income. Therefore, this limit is not applicable to full-time day traders.

Self-Employed Status?

forex tradingAs seen from the last paragraph, taxation issues could become a problem if one decides to take on Forex trading as a full-time role. In this case, many advisers recommend that the trader registers as being a self-employed financial professional. All that will need to be shown is a standard summary of profits and losses during the given tax year.

Of course, any losses can be used to offset the capital gains that would otherwise be taxed. Another benefit by taking this approach is that the individual is then classified as a “sole proprietorship”. Thus, deductions can be made for expenses such as computer equipment, Internet fees and even the use of a specific room within a home.

Spread Betting Alternatives

There are some who still hope to avoid the proverbial tax man altogether. In this case, spread betting and using a trading platform like CMC Markets within the Forex markets can be a valuable option to keep in mind. Current laws state that spread bets are not liable for capital gains tax. Also, the spreads themselves in regards to individual positions are relatively tight. This can help to generate significant profits within a short period of time.

How Does Spread Betting Really Work?

Spread betting, forex trading and contracts for difference trading (CFD) are leveraged products. These are alternatives to traditional trades, with tax benefits. Traders seeking long-term yields are turning to spread betting and forex trading!

The only possible downside here is that these positions cannot be used to offset any capital gains made from traditional currency pairs. If anything, it may be wise to utilise spread bets as a portion of one’s total income. The profits gained could be able to neutralise any capital gains tax that must be paid to the government.

There are always chances that laws could change and it is recommended to visit the relevant governmental portals to obtain the latest news and information. Much like any financial venture, appreciating the unique tax implications associated with the Forex market is necessary to make the most out of the opportunities that await.

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Category: Forex

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