What are the tax advantages of spread betting?

What is spread betting?

Spread betting is a form of derivatives trading that enables you to place a bet on the future direction of a market. When you spread bet, you never take ownership of the underlying asset you’re trading, which means you can speculate on rising and falling markets, and you won’t have to pay tax. 

Learn more about what is spread betting and how to spread bet.

Is spread betting taxable?

No, spread betting is not taxable in the UK. Spread bets are free from both Stamp Duty and Capital Gains Tax (CGT), which means you don’t have to report any profits or losses to HMRC. Tax laws will vary in other jurisdictions outside of the UK and are subject to change.

These tax rules will change depending on your employment status, as spread betting is only tax-free if it’s not your main source of income. Spread bets are not tax deductible, so you can’t offset any losses against other capital gains.

Why is spread betting tax-free?

Spread betting is tax-free due to the fact its classed as a speculative bet rather than an investment. When you spread bet, you’re not buying the shares of companies – or whichever asset you choose to trade – but rather predicting whether the market price will go up or down.

Spread betting providers will pay tax to HMRC, but individual traders won’t be liable.

Tax advantages of spread bets

Normally, to realise a profit on an investment, you’d have to sell your shares, and pay CGT and Stamp Duty on any earnings. The total tax would be charged depending on the current level of capital you hold and any earnings you bring in.

But when you spread bet, you never actually take ownership of any assets, so when you close your position, any profits you make are yours to keep.

For example, say you’d bought 1000 shares in Company ABC for £1 each. You decide to close your position once the share price has hit £1.60, giving you a profit of £600. If we assume the rate of CGT is 20% and stamp duty is charged at 0.5%, you’d be charged 20.5% in total (£122.99) which leaves you with £477.01.

However, if you’d decided to perform the same trade with a spread bet instead, your £600 profit wouldn’t be subject to tax.

Spread betting tax-free countries

Financial spread betting is only available in the UK and Ireland. In other countries, you’d need to use other trading instruments such as CFDs, Options and Futures – all of which are subject to tax in the UK. Tax laws will vary between each country.

Spread betting vs share trading

Spread betting is a popular alternative to a traditional investment portfolio as the exposure you’d get is virtually identical – bar the fact you don’t take ownership of the underlying shares. Just like traditional investments, when the price of an underlying asset goes up, you’d make money.

However, spread betting also comes with a range of other benefits that might interest you.

Spread bets are leveraged, which means you’ll only have to pay a percentage of the full value of a position to open your trade – known as margin. For example, say you wanted to buy £5000 worth of shares. With traditional stock trading, you’d have to pay this full £5000 upfront, but with spread betting, you might only have to pay 20% - or £1000.

When it comes to realising your profit or loss, your total would be calculated off the full exposure, not just the margin. This means your profit can be magnified, but so can your losses.

Spread betting also opens up the number of markets you can trade from a single account. While most share dealing accounts would be limited to shares, ETFs and other fund types, spread betting accounts can give you access to thousands of financial markets. For example, with City Index, you’d have the choice of 12,000+ global markets, including Indices, Forex, Commodities, Bonds and Interest Rates, as well as Shares and ETFs.

Spread betting costs

When you spread bet, as well as not paying any tax, you also won’t be charged a commission fee. This is because the cost of opening your trade is factored into the spread – the difference between the buy and sell prices you’ll see quoted for each market. The spread means you’ll always buy slightly above the market price and sell slightly below it.

There are other costs that your spread bets will be subject to, depending on how long you choose to keep your position open and any additional services you might require.

See our full pricing and charges list.