UK taxation for futures and options trading

globalarbtrader · Oct 25, 2020

tomorton said:
If I'd been using this forum when the thread started I would have posted that in the UK you can use spreadbetting to access the financial markets. Spreadbetting profits are exempt from tax.

But it costs a lot more than trading futures. And there are other disadvantages of trading OTC.

GAT

tomorton · Oct 25, 2020

Windlesham1 said:
HMRC have got sniffy about this over time, but it doesn't work for me as the spreads on options are terrible.

What do you mean by spreads on options, in this context?

tomorton · Oct 25, 2020

globalarbtrader said:
But it costs a lot more than trading futures. And there are other disadvantages of trading OTC.

GAT

True. When I started trading I just didn't have the capital to trade futures. Would you even recommend starting in futures to any new trader though?

globalarbtrader · Oct 25, 2020

tomorton said:
True. When I started trading I just didn't have the capital to trade futures. Would you even recommend starting in futures to any new trader though?

It's unlikely that a new trader will have the six figure capital needed. TBH most new traders would be better off staying away from leveraged / derivatives altogether. In the US I'd say trade large cap stocks to begin with, though direct investment in stocks in the UK is a tad expensive.

GAT

Windlesham1 · Oct 25, 2020

tomorton said:
What do you mean by spreads on options, in this context?

Example an option might be quoted 18-20.5 on ICE.com but it'll be 16-22 on IG. Hard to keep an edge unless you are strangling and holding for a few weeks - not for me.

Ken S · Oct 25, 2020

globalarbtrader said:
I've been trading my own money now for 6 full tax years. The percentage of my 'income' that was trading income has varied between 0% and over 95%. In all of those years my trading profits have been taxed as CGT (basically that is what I have put in my SA, and that is what HMRC has used for the calculation).

As for offsetting / carrying forward losses, sorry I don't know for sure. I've never tried it under the CGT regime (not sure if it's possible with CGT), I just sell shares to make sure I always use the entire CGT limit even if I've made a loss on my futures trading (obviously if I've made a profit, then I try and crystallise losses in my long only portfolio to reduce the CGT gain).

"Windlesham1, post: 5234000, member: 410634"]I shall be carrying forward losses as I pay income tax as an options trader. I have had a couple of losing years in the past and this only offsets the next tax year. Wondering if I can claim CGT allowance on shares, though

Thanks all, for the input. Here is something I found on the HMRC site which seems to indicate that capital losses can be carried forward for up to 4 years currently

Windlesham1 · Oct 25, 2020

Ken S said:
Thanks all, for the input. Here is something I found on the HMRC site which seems to indicate that capital losses can be carried forward for up to 4 years currently

You do not have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset. That's only a one off for the next tax year though- same with income tax self assessment. I see no use in trying to revenge trade this year, so I'm letting my losses take care of 21/22 when I will trade in size again.

tomorton · Oct 25, 2020

globalarbtrader said:
It's unlikely that a new trader will have the six figure capital needed. TBH most new traders would be better off staying away from leveraged / derivatives altogether. In the US I'd say trade large cap stocks to begin with, though direct investment in stocks in the UK is a tad expensive.

GAT

UK spreadbetting firms and brokers are now required by the regulator to offer only 1:30 leverage on the forex majors, 1:20 on almost everything else. I haven't heard this has pushed any established traders out but its certainly a disincentive to the young guys who come in with 500 quid and an attitude. (I was never one of them you understand.......)

tomorton · Oct 25, 2020

Windlesham1 said:
Example an option might be quoted 18-20.5 on ICE.com but it'll be 16-22 on IG. Hard to keep an edge unless you are strangling and holding for a few weeks - not for me.

Yes indeed, but I wasn't perhaps clear, I'm talking about spreadbetting, not traded options.

Elder · Oct 25, 2020

Windlesham1 said:
You do not have to report losses straight away - you can claim up to 4 years after the end of the tax year that you disposed of the asset. That's only a one off for the next tax year though- same with income tax self assessment. I see no use in trying to revenge trade this year, so I'm letting my losses take care of 21/22 when I will trade in size again.

Sorry, just to be clear, are you saying that you can carry forward losses For 4 years even if you are subject to income tax and not cgt on your trading?