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Do forex traders pay tax?

  • 3 min read
  • Last updated 19 Jul 2022

So, do forex traders pay tax? As you might imagine, the question isn’t as simple as it sounds. The majority of forex traders lose money, so it’s not in HMRC’s interest to allow everyone to offset their losses against their other income.

As a result, there are different rules for different trading instruments. And it all also depends on your profits. 

There are four types of tax that are relevant to forex traders:

  1. Income Tax – tax you pay on your overall earnings
  2. Corporation Tax – tax you pay on your limited company earnings
  3. Capital Gains Tax – tax that you pay on your profits from selling assets
  4. Stamp Duty Reserve Tax – a tax or duty that you pay when you buy shares

This guide is for sole traders and those who do trading as a side gig to their full time employment. 

Trading is a side gig

If forex trading is a side gig, you are covered by the Trading Allowance. It allows you to earn up to £1000 of extra income tax-free. Anything that you earn in profits over £1000 will be taxed at the standard 2022/23 Income Tax rates.

Income Tax in the 2022/23 tax year

Income Tax rate
Up to £12,570 0% Personal allowance
£12,571 to £50,270 20% Basic rate
£50,271 to £150,000 40% Higher rate
over £150,000 45% Additional rate

Trading is my main source of income

As a full time self-employed investor, you’ll be taxed on all of your profits over the tax-free Personal Allowance. 

You’ll need to register as self-employed by declaring your income to HMRC by 5th October. After this, you will pay the tax you owe via a tax return. 

Read more about the Self Assessment tax return process here. 

Do forex traders pay tax on Spread Betting and CFDs?

The type of instrument that you trade with affects the way that you’re taxed. 

Spread Betting, for instance, is classed as gambling. As you don’t own the assets you’re betting on, you’ll not be liable to pay Capital Gains Tax or Stamp Duty on the money you make from it in the UK. 

Contracts for Difference (CFDs) are a little different in tax terms. Whilst you don’t have to pay Stamp Duty on CFDs, you will be liable to pay Capital Gains Tax when you buy and sell them. 

Take a look at our Capital Gains Tax calculator to see what you might owe. 

Your situation

Outlined number oneOutlined number one
How did you make money?
Profit from capital gains
Annual salary
?
Other income
?

Tax and profit

Outlined number two
  • Your profit from
    shares
    £20,000
    Incl. £12,300 tax-free CGT allowance
    ?
  • Capital Gains Tax to pay
    £1,413
  • Profit after tax
    £18,587

How your capital gains tax is calculated

Your total capital gains tax (CGT) owed depends on two main components:

  1. How much you earn in total
  2. What type of assets you sell

Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.

In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:

Capital gains tax (CGT) breakdown

You pay no CGT on the first £12,300 that you make

You pay £127 at 10% tax rate for the next £1,270 of your capital gains

You pay £1,286 at 20% tax rate on the remaining £6,430 of your capital gains

Are there any more considerations?

Yes, there are a few things to consider when working out whether or not you might owe tax on your trading profits. 

First of all, there are expenses. If you’re a full time trader and you’re not claiming the Trading Allowance, you’re allowed to deduct your expenses from your income when you work out your taxes. Allowable expenses are basically anything that you’ve spent wholly, exclusively and necessarily on your trading business. 

Secondly, you should consider the size of your trading business. Questions like the below are important to ask yourself when questioning whether or not you owe tax:

  • How much do you earn overall?
  • How often and how much do you trade?
  • Do you pay tax on the rest of your income?
  • How much tax do you normally pay?

If you’re earning a lot from trading and you’re not yet paying tax on your profits, the chances are that HMRC will come knocking before too long.

Not sure if you owe CGT?

We can help. We offer one-off, personal tax advice from an accredited accountant. Speak to  CGT accounting expert and clear up any confusion about your trading liabilities. Just £119 per consultation with no strings attached. Learn more.

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