UK taxation for futures and options trading

Thank you for the help. I have another doubt and sorry in advance for these stupid questions.
I am planning to open an account with Interactive Brokers to trade options, futures and ETFs.

So, reading messages above, it seems that any profit and loss that I will generate will be treated as capital gain (so not as income) thus calling for CGT (18% for base or 28% for higher tax payer).

But what happens if the contracts I trade are listed outside UK?

For example, suppose that I trade options and futures on german DAX index (both listed on the Eurex market).
These contracts are listed in EUR and suppose that I generate a profit of (equivalent) £1,000.

Being less than the UK tax free capital gain allowance, is it correct that I don't have to pay any tax on the £1,000 profit?

Or does the fact that the contract are listed outside UK play a role here? Similarly, is the fact that profits are in EUR important for tax purposes? Or I can simply convert any EUR denominated P&L into GBP using the FX rate at the moment I realize the P&L?

Thank you very much.
 
the learner said:
Thank you for the help. I have another doubt and sorry in advance for these stupid questions.
I am planning to open an account with Interactive Brokers to trade options, futures and ETFs.

So, reading messages above, it seems that any profit and loss that I will generate will be treated as capital gain (so not as income) thus calling for CGT (18% for base or 28% for higher tax payer).

But what happens if the contracts I trade are listed outside UK?

For example, suppose that I trade options and futures on german DAX index (both listed on the Eurex market).
These contracts are listed in EUR and suppose that I generate a profit of (equivalent) £1,000.

Being less than the UK tax free capital gain allowance, is it correct that I don't have to pay any tax on the £1,000 profit?

Or does the fact that the contract are listed outside UK play a role here? Similarly, is the fact that profits are in EUR important for tax purposes? Or I can simply convert any EUR denominated P&L into GBP using the FX rate at the moment I realize the P&L?

Thank you very much.
More...

Doesn't matter where the contracts are you pay UK CGT. If you make more than the £11K ish allowance, then you pay tax, no matter where you are trading.

Tax calculation for futures is:

- acquisition cost translated to GBP when you buy/sell initially at the prevailing rate. Acquisiton cost would be commission and option premium if relevant.

- disposal cost translated to GBP when you close out the trade,at the prevailing rate. That would be the futures profit, less commission, or profit and loss on the option.
 
Heres some examples

Buy option on DAX, cost euro 995, commision euros 5
translate into GBP at rate on day of purchase = £600

Sell option for euro 2000, commission euros 5
translate into GBP at rate on day of sale = £1100

Profit = £1100 - £600 = £500



Buy future on DAX, commission euros 5
translate into GBP on day of purchase = £3

Sell future at loss of Euros 1000, commission euros 5
translate into GBP on day of purchase = £600

Loss = £3 plus £600 = £603

Hopefully these make sense

the learner said:
Thank you for the help. I have another doubt and sorry in advance for these stupid questions.
I am planning to open an account with Interactive Brokers to trade options, futures and ETFs.

So, reading messages above, it seems that any profit and loss that I will generate will be treated as capital gain (so not as income) thus calling for CGT (18% for base or 28% for higher tax payer).

But what happens if the contracts I trade are listed outside UK?

For example, suppose that I trade options and futures on german DAX index (both listed on the Eurex market).
These contracts are listed in EUR and suppose that I generate a profit of (equivalent) £1,000.

Being less than the UK tax free capital gain allowance, is it correct that I don't have to pay any tax on the £1,000 profit?

Or does the fact that the contract are listed outside UK play a role here? Similarly, is the fact that profits are in EUR important for tax purposes? Or I can simply convert any EUR denominated P&L into GBP using the FX rate at the moment I realize the P&L?

Thank you very much.
More...
 
the learner said:
Thank you. But who is in charge for the conversion to GBP? Is it something that brokers do?
More...

Suppose you're buying a call on DAX. If you trade with interactive brokers and you don't have enough euros then they'll automatically lend you euros to find the premium. Or if you prefer you can sell GBP and buy Euros (and then reverse when you close out the trade), but that would be manual.

If you didn't have to change currency, you could use the prevailing FX rate on that day in your tax return.

Note if you borrow money, you can't offset the interest charge against profits under CGT rules.
 
Do you know if is it possible to have the account in EUR?
I am going to trade only EUR denominated contracts so if I open the account with, say, €10,000 and realize P&Ls in EUR for a total of €1,000 in one year, at the end of the year I can see how many GBP are worth my €1,000 profit.
This would be less complicated than taking note of all conversione rates whenever you realize a profit.
 
the learner said:
Do you know if is it possible to have the account in EUR?
I am going to trade only EUR denominated contracts so if I open the account with, say, €10,000 and realize P&Ls in EUR for a total of €1,000 in one year, at the end of the year I can see how many GBP are worth my €1,000 profit.
This would be less complicated than taking note of all conversione rates whenever you realize a profit.
More...

You can have a Euro account. By default all IB accounts are multicurrency. So you could eithier deposit GBP and convert with IB into EUR as I said; or you could convert it somewhere else and deposit EUR with IB. If you are only trading EUR then that might make sense.

BUT I'm afraid you still need to note the conversion rates for calculating your taxes on each trade.
 
Hopefully this thread has not gone too cold yet, as this is an interesting discussion, and one of the only places I've managed to find any information on this particular subject! (at least from a UK perspective).

I've been using IB to trade US listed options for the last couple of years, working out the tax calculations/payments in the same way as described by "globaltrader", i.e. as CGT based on the profit/loss of any transactions (converted into GBP on date of transaction minus any charges/commission). I use a spreadsheet to help create a list of all the transactions, which I then plug into http://cgtcalculator.com/ to do the actual tax calculation, and use the output from this on my tax return.

My question is more about the actual matching of the trades, as up to now, I've been using the "name" of each specific option, e.g. "AAPL-17JAN15-100-C" (Apple call option with $100 strike expiring Jan15) so that trades of that same option get matched with each other to calculate the profit/loss, but trades of a different option (for the same underlying stock) would be treated/matched separately. Is this the correct way of doing this, or should different options of the same underlying stock (plus any trades in the actual stock itself) somehow by lumped together and treated as trades in a single entity? Clearly that would be a pretty complicated calculation to try and work out, especially if you have multiple trades of multiple different options, but I'm curious as to how HMRC might see this, and indeed whether anyone has been challenged for doing it the way described above (or any other "sensible" way that they thought was acceptable based on the limited information published about this!).
 
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