Tax and the Independent Financial Trader

Capital Gains Tax, Income Tax or No Tax?

Do profits earned by an independent financial trader buying and selling 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 questions above will never apply to the type of activities an independent financial trader/day trader undertakes. There is no one-size-fits-all rule book that determines how profits and losses from day trading should be treated for tax purposes. Each day trader’s approach to trading and their personal circumstances will be different. As such, many factors specific to the individual day trader will have to be looked at to determine whether he/she will be considered a private investor, liable to Capital Gains Tax or a self-employed individual, liable to Income Tax. There is also the possibility that in certain cases day trading activities might be considered speculative in nature and not taxable.

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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.