Tax and the Independent Financial Trader

Capital gains tax, income tax or no tax?

Do profits earned from day trading shares always incur a charge to capital gains tax? Are profits from FOREX trading always liable to income tax and are spread betting profits always tax free?

The word “always” in the above statement will never apply to the type of activities a day trader undertakes. There is no one-size-fits-all rule book that determines how profits and losses from day trading are treated for tax purposes. Due to the nature of a day trader’s activities, HMRC can only determine an individual day trader’s tax status by reviewing the day trader’s specific circumstances in order to confirm which tax is applicable.


The Long Term Investor vs The Day Trader

Long term Investor:
Gone are the days when investors and speculators had limited choices as to what and how to invest.

How things have changed. Now anyone with a computer and an internet connection can open an online account and start trading the financial markets.

Day Trader:
Today participating in the financial markets is much more diverse with a wealth of financial products available for people to trade. Participating in the financial markets is no longer just for the long term investor.

The diversity available to today’s day trader means that a number of different aspects of the UK tax system have to be considered when determining the tax implications of day trading. This complexity means that unlike the long term investor, the day trader cannot establish their tax position with ease.

With the long term investor buying shares as a long term investment, making a gain when disposing of those shares after a period of time, would without question incur a charge to capital gains tax. For the day trader things aren’t quite so simple.