Posted on: 23rd November 2017
Investing, Trading or Gambling
If day trading activities can sometimes be classed as speculative in nature, similar to gambling and, therefore, not taxable, you might be wondering how you might structure your activities to ensure that your day trading activities fall into the gambling category, making you tax free. We’d advise you not to waste your time worrying about this. Whether a day trader is not liable to tax is a question of fact and is not an issue that the day trader should force.
On the surface not being liable to tax on your day trading profits might appear the best scenario. However, if day trading is your main source of income and you’re not liable to tax on this income, then you could find that you have issues in other areas of your finances. For example, you might find it difficult to get a mortgage or loan. This is as most lenders will ask you to show income reported on your tax return as proof of income. Another downside is that you won’t get relief for your day trading losses. This is unlike day traders taxed under the Capital Gains Tax or Business Tax rules, who can relieve losses either against other gains or general income, depending on which set of rules they are taxed under.
As we say in the tax world, one shouldn’t let the “tax tail wag the financial dog”; meaning don’t obsess over reducing your tax bill at the cost of everything else. For further information about whether you’re day trading as a private investor and liable to Capital Gains Tax; or whether you are trading as a self-employed day trader, liable to Business Tax, please read our other Knowledge base factsheets and articles.