Tax on Forex Trading UK – What are they?

If you wish to become a forex trader in the UK, you need to understand forex tax and your tax duties under UK income tax legislation. Is this a tax-free source of income, or do you need to record your profits and pay any applicable taxes? Because the vast majority of forex traders lose money, it is not in HMRC’s best interests to enable everyone to deduct their losses from their other income. As a result, different trading instruments have distinct regulations. And it all relies on your earnings.

There are mainly four sorts of taxes that influence forex traders:

Income tax

The tax you pay on your total earnings. The amount of tax you pay again depends on the income you generate from all your activities. Where Forex trading can be one of your income sources. You can read more about the income tax brackets on our article here.

I can tell you that Forex traders in the UK are subject to corporation tax on their profits. This is because trading is considered a source of income, and as such, it is subject to taxation.

 

If you are a Forex trader with profits of £50,000 or more, you will be liable to pay income tax at 20%2. However, if your profits are less than £50,000, then there is no tax to pay.

Income Tax for Forex Traders

Capital Gains Tax

Forex traders in the UK are subject to capital gains tax (CGT) on their profits. This is because trading is considered a source of income, and as such, it is subject to taxation. The CGT rate for individuals in the UK is 10% for basic rate taxpayers when their total income and capital gains are no more than £50,2701. If your total income is £50,271 or higher then your profits will be subject to 20% CGT1. There is, however, a CGT tax allowance for the first £6,000 in the tax year 2023-24.

Stamp Duty Reserve Tax

A tax or duty levied on stock or share purchases related to your business.

Is Forex trading tax-free in the UK?

Forex trading is not tax-free in the UK. It is subject to capital gains tax (CGT) or income tax depending on your trading activities and tax status. However, let’s say you are spread betting as a trader. It is considered to be similar to betting activities. If you are classified under this category then gains earned from forex trading are not subject to income tax, business tax or capital gains tax. Nevertheless, as the income is not taxed, you are not entitled to claim potential losses

 

Forex tax on trading in the UK depends on the instrument through which you are trading currency pairs. You can fall under spread betting or you can trade contract for differences (CFDs). If the trading activity is performed through a spread betting account, income is tax-exempt under UK tax law.

It’s important to note that tax law can be confusing and subject to change. You should always seek advice from a tax accountant professional or the HMRC to ensure that you are complying with all relevant tax laws.

What if I Trade as a side income source?

Yes, if you are trading as a side income in the UK, you may have to pay tax on your earnings. However, there is a tax-free trading allowance of £1,000 for additional income outside of your regular employment1. This means that if you earn less than £1,000 from your side hustle, you do not have any additional tax obligations1. If your total trading or miscellaneous income is more than £1,000 in a tax year (6 April – 5 April), you will need to register as self-employed and pay tax on your earnings.

If Trading is the primary income?

Although crypto and forex are two different things, you might want to have a understanding on the crypto tax. Cryptocurrencies have emerged as a crucial component of trade transactions. Making it required to set up a taxation policy in the UK.

 

Individuals are obliged to settle Capital Gains Tax (CGT) when they engage in activities such as selling cryptocurrencies in exchange for fiat currency, trading one form of cryptocurrency for another, or utilizing cryptocurrencies to make purchases of various goods and services.

 

The HMRC has devised a taxation framework that applies to both individuals and businesses involved in cryptocurrency transactions. Therefore, if you are someone who is associated with crypto’s read our article to know more on crypto tax in the UK. Got more questions? We will be happy to help you out! Feel free to reach out to us.

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