Spread Betting and Tax Implications: Is Spread Betting Taxed in the UK? [2024]

As of 2024, the political and financial landscape in the UK has shifted, with the new Labour government coming into power. For many spread bettors, investors, and traders, understanding the tax implications of spread betting is critical in this evolving context. While spread betting has traditionally been tax-free, changes in the broader political and economic climate may signal future adjustments to these regulations. In this article, we’ll dive into the current tax status of spread betting in the UK, how it compares to other forms of financial trading, and what potential changes could be on the horizon under the new government.

Tax Status of Spread Betting in the UK

Spread Betting Remains Tax-Free (For Now)

As of 2024, spread betting continues to benefit from tax exemptions in the UK, just as it did under previous administrations. This tax-free status means that profits from spread betting are not subject to Capital Gains Tax (CGT)or Income Tax. HM Revenue and Customs (HMRC) classifies spread betting as a form of gambling, which exempts it from the taxes that typically apply to other forms of investment and trading, such as shares or contracts for difference (CFDs).

• No Capital Gains Tax (CGT): Profits from spread betting are not considered capital gains, so they are exempt from CGT. This is a key advantage for spread bettors over traditional investors.
• No Income Tax: Since HMRC views spread betting as speculative, any earnings from spread betting are not considered income, meaning spread bettors do not pay income tax on their profits.
• Exemption from Stamp Duty: Spread betting is also free from Stamp Duty, which is normally applicable to the purchase of shares. Since no ownership of the underlying assets occurs in spread betting, traders avoid this tax entirely.

No Tax Offsets for Losses

While spread betting offers tax-free gains, it’s important to note that losses incurred through spread betting cannot be used to offset gains from other taxable investments. For example, if you suffer a loss while spread betting, you cannot deduct that loss from your taxable capital gains, as you could with other forms of trading like CFD trading.

Understanding Capital Gains Tax in the UK

While spread betting is tax-free, it’s useful to understand how Capital Gains Tax (CGT) works for other forms of financial investment, as spread betting is often compared to share trading and CFDs.

Capital Gains Tax Rates and Allowances in 2024

• Higher or Additional Rate Taxpayers: Pay 28% on gains from residential property and 20% on other assets like shares or bonds.
• Basic Rate Taxpayers: Pay 10% on gains from most assets (or 18% for residential property).

CGT Allowances

In 2024, individuals still benefit from a CGT allowance, which allows them to earn a certain amount of gains before CGT is applied. However, under the new Labour government, there has been speculation about reducing this annual exemption, as part of broader fiscal reforms aimed at wealth redistribution.

Spread Betting vs. CFD Trading: Tax Comparison

Although spread betting and CFD trading can seem similar, they have starkly different tax treatments.

Spread Betting

• Tax-Free: No CGT or income tax applies to profits.
• No Stamp Duty: Spread betting is exempt from the Stamp Duty applied to share purchases.
• No Loss Offset: Losses from spread betting cannot be used to offset capital gains elsewhere.

CFD Trading

• CGT Applicable: CFD profits are considered capital gains and are subject to CGT, just like shares.
• No Stamp Duty: Like spread betting, CFDs are exempt from Stamp Duty.
• Loss Offset: Losses in CFD trading can be used to offset other capital gains, which can be beneficial for tax planning.

With the Labour government’s focus on fair taxation, there have been discussions about potentially closing the gap between spread betting and other forms of speculative trading, such as CFDs, to ensure a more equitable tax treatment across financial activities.

Income Tax in the UK (2024 Updates)

In the 2024 tax year, income tax remains an essential part of the UK’s fiscal structure, but spread betting remains exempt from it. Let’s briefly outline the income tax rates and personal allowances as they currently stand:

• Personal Allowance (Up to £12,570): No income tax is paid on earnings up to this amount.
• Basic Rate (20%): For incomes between £12,571 and £50,270.
• Higher Rate (40%): Applies to earnings from £50,271 to £125,140.
• Additional Rate (45%): Income over £125,140 is taxed at this rate.

For traders engaging in CFD trading or share trading, income from dividends or trading profits could be subject to these rates. However, spread bettors continue to enjoy their tax-free status under the current tax laws.

The Impact of a New Labour Government on Spread Betting

The new Labour government has come into power with an agenda focused on wealth redistribution and closing loopholes in the tax system. While no official changes have been made to the tax-free status of spread betting, there have been murmurs within political and financial circles about reviewing the taxation of speculative financial activities, including spread betting.

Potential Tax Reforms

• Review of Tax Exemptions: There is a possibility that the Labour government could reassess the tax-free status of spread betting, particularly as part of a broader effort to align the tax treatment of various forms of financial speculation.
• Increased Scrutiny on Professional Bettors: One area of concern is whether individuals who make their living through spread betting could be classified as professional traders, which would subject their profits to income tax. While the majority of spread bettors are considered casual traders, those earning significant sums from betting may face higher scrutiny.

What This Means for Traders

While the current tax laws still favor spread betting, traders should stay informed about potential legislative changes that could impact their strategies. It’s advisable to follow updates from HMRC and, if necessary, consult a tax professional to ensure compliance with evolving tax regulations.

Conclusion

Spread betting remains a tax-free form of financial trading in the UK as of 2024, offering significant advantages for those looking to speculate on markets without the burden of Capital Gains Tax or Income Tax. However, under the new Labour government, the tax landscape could shift as part of a wider effort to close loopholes and ensure a fairer distribution of tax liabilities. For now, spread betting continues to offer an appealing, tax-efficient option for UK traders, but it is crucial to stay updated on any forthcoming changes in tax policy that could affect this status.

Author Profile

James Warwick

Director of SpreadBet & Experienced Trader at Spread Bet | Website

James is a former FTSE100 AI Director and trader with 10+ years trading his own capital. He is the Managing Director of SpreadBet.AI and currently trades his own capital through both CFD trading & spread betting as well as working with one of the leading prop firms in the world.