Posted on: 1st February 2017

Are Day Trading losses tax deductible?

What happens if your day trading activities result in a loss? If your day trading activities have resulted in a loss, there is the possibility that your losses could be tax deductible. You may be able to offset losses against either capital gains or other income. Whether a trader has made a capital loss or a loss arising from self-employment, depends upon whether HMRC have given the trader private investor status or deemed the day trader to be self employed.

All brokers will warn new traders that losses may exceed profits. In any business venture or investment portfolio there is the risk of making a loss. If you’re a day trader deemed by HMRC to be a private investor liable to Capital Gains Tax and suffer a loss as any investor might, you will be able to offset capital losses against capital gains. If you’re deemed by HMRC to be self-employed, then a loss arising from day trading activities can be offset against other income.

You can read more about the day trader who went up against HMRC in court and won, allowing him to offset significant day trading losses against income he had from another business. Although it should be noted that in this tax case the point of contention was the fact that the day trader in question, rather than having his tax status agreed with HMRC, made the decision himself that he was a self-employed day trader, where previously he had reported the profits and losses from his day trading activities to HMRC on the basis that he was a private investor.

Read Anna’s article in the Armchair Trader.