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Home / Tax Free Trading

Tax Free Trading

Spread betting is tax free, CFDs are exempt from stamp duty.

  • CFDs in the UK are not presently subject to stamp duty*
  • Spread betting in the UK is not presently subject to either CGT or stamp duty*
  • Trade on margin
  • Trade shares, commodities and currencies online, from one account
  • Go long or short on your chosen market
  • Close the position when you choose – spread bets roll over on expiry. There is no expiry on CFD positions.

CFDs and spread betting (i.e. spread trading) are margined products which give financial traders exposure to an underlying asset on a leveraged basis. What’s more, spread betting is an increasingly popular method of tax free trading online. Although you don’t actually own the asset (e.g. stocks, traded commodities, currencies etc), you profit or lose depending on which way the underlying asset moves. As such, holders of CFD and spread betting positions on shares do not have voting rights, unlike traditional shareholders.

The basic ideology behind CFDs and spread betting is that you can make a profit on potentially any trade, in almost any market providing you correctly predict the future direction. Otherwise, you’ll incur a loss. The simplest way to describe spread betting is as follows:

–         You anticipate shares in Barclays will increase from 150p a share to 200p a share

–         You therefore buy-in at £10 a point on the stock going long (going up).

–         The stock only increases to 180p a share. So despite it not increasing to what you had previously anticipated you still have a running profit of £300 because your stock increased by 30 points (30 points x £10 a point = £300)

–         The next day the stock has dipped slightly to 175p a share, at this time you decide to close the contract on this trade

–         Although it has increased, but not as much as you anticipated, and decreased slightly from its highest point since you brought in, you have still made £250 because the stock went up 25 points.

Although tax free trading with spread bets is understandably attractive to many, one of the greatest risks when spread betting is the reverse of this scenario:

–         You anticipate shares in Barclays will increase from 150p a share to 200p a share

–         Therefore you buy-in at £10 a point on the stock going long (going up).

–         However, this time the stock decreases to 140p a share

–         The next day you find that although the stock has increased slightly it has only risen to 142p a share

–         You chose to cut your losses and close your position 8p down from when you brought in. But due to you anticipating that the stock would go up, you have lost £10 a point. (8 points x £10 a point = £80)

There is a way to combat this problem when tax free trading online using spreadbets. You can use stop-losses and limits on your trade prior to executing it:

–         You anticipate shares in Barclays will increase from 150p a share to 200p a share

–         Therefore you buy-in at £10 a point on the stock going long (going up).

–         You place a stop-loss at 5 points and a limit at 20 points

–         This means that should the price of the stock decrease to 145p a share or increase to 170p a share, it will stop the trade and you will control your losses or take a profit at your pre-set level.

–         The stock rises to 170p a share and the limit order automatically closes the trade for you so you have made a profit of £300 without having to sit and watch the trade.

When spread betting, using stop-losses and limits are the best way of conducting trades because it gives you the peace of mind of knowing that you are in control of your own trade. You should always be aware that when trading you can never fully be in control because the stock market is such a volatile creature. However you can retain some control when you trade because spread betting allows you to tailor your trades to your specifications and eventually perfect your trading techniques.

One factor which appeals so much to traders and investors is the tax free trading element. Spread betting is free from Capital Gains Tax*, Stamp Duty* and commission charges, which means that you keep the £300 profit made from the trade above.

*Under current UK tax law. Tax laws may be subject to change.

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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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