In recent years, there has been a lot of hype about forex trading. With the sector showing potential results, it’s no surprise that many individuals want to get involved in forex trading.
However, the forex trading market is far from straightforward as a newbie. If you have no past trading experience, you will need to master all of the technical language before even beginning to understand the process!
Despite the challenges of the first few months, a lucrative career in forex trading is still feasible. There are already a few traders that have had significant success.
If you want to make forex trading your new job, there are many things to consider. Taxes are one of them.
Taxes will act as an extra cost to your business, so you need to be prepared for them. You’ll also need to know how they work to avoid breaking any tax laws!
To help you out, we’ve put together and explained the most important UK laws on tax in forex trading.
Tax on Trading as Your Primary Source of Income
You will be classified as self-employed if trading is your principal source of income. This implies that taxation will operate similarly to any other personal business.
You will need to register with HMRC and disclose your gains or income. All profits beyond the threshold, which is now £12,570 per year, will be subject to income tax.
Tax on Trading for Extra Cash
The trading allowance will cover you if you are trading for a little more income on the side. Trading allows you to make an extra £1000 each year tax-free.
If you make more than £1000 per year as a side income, anything beyond that is taxed at ordinary income tax rates.
Tax on Spread Betting and CFDs in the UK
If you prefer spread betting in your forex trading, there is some excellent news for you. Spread bets are not taxed in the United Kingdom so that you may keep all your gains.
This is because spread betting is officially classified as gambling. Furthermore, you are not subject to stamp duty or capital gains tax because you do not own the assets you are dealing with.
CFDs are a little different in that you must account for capital gains tax. Although there is no stamp duty, you will owe a set amount of capital gains tax on your profits.
Things to Consider
You should always be prepared for taxes. In your trading journals, it’s a good idea to apply taxes as part of your costs. If you’re looking to grow a larger trading account, you should know how any tax will slow your process.
One thing you should remember is your expenses. Some traders quickly declare their revenue as their profits to the HMRC. However, it would be best to remember to account for your costs as a trader!
If trading is your primary source of income, you’re allowed to account for expenses. This means anything you’ve spent exclusively and necessarily on your trading career.