Spread betting is subject to the regulatory requirements imposed by the Financial Services and Markets Act 2000 and involves betting on the outcome of an event based on a points spread.
Gamblers can buy at the top or sell at the bottom of the spread, with winnings or losses calculated by multiplying the unit staked by the difference between the actual result and the buying or selling price.
The activity does attract, under certain circumstances, General betting duty, which is a separate subject, but what about income tax?
The taxation of gambling has been considered by the courts several times over the years and the tax treatment of spread betting may follow the basic position of betting and gambling and as such does not necessarily constitute trading, HMRC’s guidance discusses this at BIM22015
In the case of Graham v Green [1925] 9TC309, Rowlett J commented –
‘A bet is merely an irrational agreement that one person should pay another person on the happening of an event.’
Down v Compston [1937] 21TC60 and Burdge v Pyne [1968] 45TC320 demonstrate that betting wins must come from the carrying on of the trade and not simply from an opportunity presented by a trade before they can be considered as taxable. An example of where a trader entered into a bet in the course of trading is the circumstance where a bet is used to hedge the interest rate on a loan for a business BIM22019
To be taxable as trading income therefore spread betting wins must arise from the carrying on of a trade and that will depend on the contract and economic substance of what has been carried out.
The success of a gambler sufficiently skilled to consistently win or the losses of an unskilled better, does not in itself change the activity to that of a trade.
An exception to the basic position is that of an organised activity conducted to make profit fom the gambling public, the most obvious one being that of the bookmaker.
The miscellaneous income provision at S687-S689 IT (Trading and Other Income) Act 2005, do not tax gambling winnings, this is commented on in HMRC guidance at BIM100101
Where however reward is received for providing tips and advice to others, this activity may constitute a trade and therefore be taxable. It is down to the facts of the particular case.
However, the receipt of commission from advice being provided to friends arises from the advice, not personal spread betting, and so would appear to be taxable income either as a trade or miscellaneous income. See BIM22035.
Contracts for differences (CFD) entered into by companies is defined as a contract for the purpose (or pretended purpose) of which is to make a profit or avoid a loss by reference to fluctuations in the value or price of property referred to in the contract, or an index or other factor designated in the contract. Generally, the profits and losses arising under such contracts are brought into account for tax purposes (CTA 2009 S594A)
My advice is to check that the funds introduced are as described and when satisfied that is the case, apply the basic principles with the winnings unlikely to be taxable but the amounts received for providing advice to others being taxable.
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