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What are the CFD trading tax implications?

  • 3 min read
  • Last updated 29 Jan 2024

With the popularity of Contracts for Difference (CFD) on the rise in the UK, it’s important to know about the CFD trading tax implications that come with them. When traded correctly, they can be a great way to create a diverse investment portfolio. 

However, like any trading instrument, it’s important to know about the risks and rules surrounding taxation before you start investing. We’ve put together an easy guide to explain all you need to know about the CFD trading tax implications below.

What is a CFD?

Before we dive into the CFD trading tax implications, let’s start by explaining what a CFD actually is. 

A CFD is a type of financial contract that pays the difference in the settlement price between the open and closing trades. HMRC define it as: 

‘A contract whose purpose is to get a profit or avoid a loss by reference to fluctuations in:

  • The value or price of the property to which the contract refers
  • An index or other factors designated in the contract.’

The outcome of a CFD investment completely depends on the evolution of the price of an underlying asset. For example, if the price of the underlying asset rises, you’ll make a profit. If it decreases, you’ll lose money. 

Some of the most popular underlying assets to trade with CFDs include:

CFDs have the potential to generate profits and help investors build a strong trading portfolio. If you’re thinking of starting CFD trading, then there are a few tax implications that you should know about first.

CFD Tax top tips

  1. Remember to keep track of all the instruments you’re trading. Be thorough when saving your history of buy and sale dates, prices and even market entry and exit points. If you don’t, it’ll be harder to calculate what tax you’ll need to pay on your profits
  2. Save all your trading history. This allows you to search for any information that you need to review
  3. Seek professional help if you’re unsure about your tax return. There are plenty of online tax return services (like TaxScouts…) that can make sure you pay the right amount of tax and on time!

CFD trading tax implications

Are CFD profits taxable?

If you trade CFDs, you might be wondering if you have to pay tax on any profit you make. One type of tax you might have to pay is Capital Gains Tax (CGT).

As an individual, if you’ve made a capital gain on a CFD above the CGT allowance, then you need to file a Self Assessment tax return to declare this profit and pay tax on it. 

However, if it’s your limited company that has made a profit on a CFD, and not you individually, then you will have to pay Corporation Tax. You’ll pay tax on any profits your company makes from selling these types of assets. 

How much tax will I pay?

You’ll only have to pay Capital Gains Tax (CGT) on your overall gains above your tax-free allowance. Your gain is the difference between what you paid for your asset and what you sold it for.

In the 2024/25 tax year, this CGT allowance is £3,000. Previously, the 2023/24 tax year allowance was £6,000.

If you want to know the exact amount of CGT you’ll pay on your CFD, use our Capital Gains Tax calculator below!

Does this have anything to do with the government’s CFD scheme?

Nope. The government’s Contracts for Difference scheme has the same name as CFD trading, however it’s actually how the government supports low-carbon electricity generation. The CfD scheme incentivises investment into renewable energy. They also promise a pre-agreed, fixed price (much like we do 😏) for the duration of the contract. Although it’s very important work, it’s not exactly what we’re talking about here.

Your situation

Outlined number oneImage of an arrow
How did you make money?
Profit from capital gains
Annual salary
Other income

Tax and profit

Outlined number two
  • Your profit from
    £3,000 tax-free CGT allowance
  • Capital Gains Tax to pay
  • Profit after tax

How your capital gains tax is calculated

The total capital gains tax (CGT) you owe depends on two things:

  • How much you earn in total
  • 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 your 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 £3,000 that you make

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

You pay £3,146 at 20% tax rate on the remaining £15,730 of your capital gains

Tax bill amount £3,273
I want to pay by
Savings frequency

You need to save

£4.91 per day

to pay your £3,273.00 tax bill by 31/1/2026 which is in 666 days

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