What are the tax advantages of spread betting?

Spread betting is free from many of the costs you’d face when investing in shares – for example, there’s no Capital Gains Tax or Stamp Duty. Discover why spread betting is tax-free and other advantages of spread betting over traditional share trading.

Trader 2

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 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 CFDsOptions 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 IndicesForexCommoditiesBonds 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.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.