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Sport Spread Betting Abroad with a Tax Free Twist

Betting is often associated with illegalities; it is hard to imagine that spread betting, and the earning thereof, is actually tax free!

So Is It True That Spread Betting Attracts No Tax?

Yes, it does not attract tax. Those who spread bet do not incur the 18% tax expense for capital gain paid by shareholders on their trading profits (capital gain is the remaining amount after subtracting the amount you invested from the amount gained after sale). Betters do not incur stamp duty; they do not also get commissions per trade; only from spreading. The fact that this kind of betting is tax free means that there is an extra 18% return earned on trading profits because you get to save the amount that would otherwise be incurred as tax. Furthermore, this kind of betting does not attract dividend income tax, which is usually charged up to 50% for those earning high income.

However, spread betting can only escape tax charges if you do not solely depend on it for income. If you indicate such jobs as trader or day trader on your account, you may have a hard time explaining to Inland Revenue where your money comes from, if you go claiming you’re your main income source is not trading.

No Tax on the Benefits Too?

In short, you should not be charged any tax from the winnings you get from spread betting or other types of gambling. Those without income sources other than gambling may be said to have gambling as a profession, hence losing their BIM22017 exemption. If you have a job and you incur PAYE charges, you will not be said to have gambling as your profession, hence you will not incur gambling taxes regardless of whether or not gambling earns you more income. HMRC do not freely classify just anyone as professional gambler since even those who are professionals may claim shelter from their gambling losses and from the proportion of the betting company’s tax.

 In my opinion, most of the spread betters do not bet as their main income source, hence they do not fully escape tax. Professional gamblers hire brilliant accountants to sort out their financial matters. Nothing can stop wealthy traders with self-employed 'subsistence earnings' from consultation that they are taxed for. It can be challenged by revenue, but it may not win against current legislation. After I started my work in the department of Finance, I learnt that tax law can be more freely interpreted than I had ever known.

But Then How Is One Taxed If One Invests In Spread Bets/CFDs?

Spread betting is not handled like other difference contracts. The spread betting service providers pay betting tax direct to HMRC, making the bid-offer bets slightly higher in order to cater for tax.  Since 10/6/2001 overall betting duty has been charged at 3%, on the net stake takings of financial spread-betting organizations i.e. all the bets received minus any paid out winnings. The profits from spread-bets will not be charged tax, but loss claims too will not be accepted.

Difference contracts, however, spread slower and do not attract betting duty. The profits will attract CGT, hence exempting them from tax charges on approximately the first nine thousand. For professional traders of CFD may have their profits attracting income tax instead of CGT in such a case. You should seek advice from an expert accounting firm. 

 How Is Stamp Duty Charged and When Should It Be Paid?

This is duty applied to share purchases in the UK, it does not include sales. Currently, it is at 0.5% (in UK) of what is paid to buy shares in exclusion of excluding broker commissions among others. In Ireland, it is at 1%.

Spread betting does not attract the UK stamp duty on share purchases; hence it would be cheaper to have medium or short holidays than purchasing shares. For example, charges on IG Index LIBOR with 2.5% on long positions of spread betting held overnight. Therefore, assuming 0.55% overnight rate, 3.05% per year would be applied. This way, savings on stamp duty would be exceeded in 60 days by the accumulated financing expense.

Note: The UK stamp duty is not applied in case the shares are internationally traded, but there are comparable taxes in Singapore and Hong Kong.

 Why Stamp Duty? Is It Reclaimable?

Stamp duty helps raise government money and in is non-reclaimable. It is extra tax and also expenditure (VAT) among other charges as Council Tax and Excise Duty. CGT is also paid when you sell an asset. The 2010 alterations of CGT led to an increase in rate when profits and income increase your rate tax to 28% from 18% (the 18% remaining for any remainder within the simple rate band). The £10,100 yearly allowance (2010/11) remains. In case you want to evade Stamp Duty, you can use spread-bets or CFDs to invest purchase shares USA; profits from spread-bets do not attract CGT. Note that also in Greece and Switzerland, equity transactions attract stamp duty.

 

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