The tax on forex trading in the UK depends on the instrument through which you are trading currency pairs: you can fall under spread betting or you can trade contract for difference CFD. If the trading activity is performed through a spread betting account the income is tax-exempt under UK tax law. Spread betting, from forex trader perspective, is the process in which the trader speculates about the price movements, based on broker prices, of an underlying asset , without actually owning the asset. The downside when your trading activities fall under the spread betting is that you are not eligible to claim losses against your other personal income.
However, there is a benefit for you as a forex trader — you don't pay stamp duty because through spread betting you don't own the underlying asset.
Instead, you are trading some form of a derivative instrument. The stamp duty is levied and it is paid by the spread betting providers brokers. If you trade contracts for difference CFD , then you are subject to capital gains tax CGT on gains you earn from your trading activities. For filing your tax, you can make a record of your transactions or ask for PnL statement from your broker.
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Another important issue to keep in mind is that you can ask for tax relief if you incur losses from your trading activity. As cryptocurrencies have become an important part of trading activities, we should also take a look into the basics of cryptocurrency taxation in the UK. If you are a member of a couple and have a joint claim with your spouse, civil partner or someone with whom you are living, you must set off your losses against your joint household income for the tax year of the loss.
Any surplus can be carried forward and set against income of the same trade for a future tax year. For both real tax and tax credits, losses, which are not set off in any other way are carried forward and set against future profits of the same trade. However, the amount carried forward will often differ for real tax and for tax credits.
Managing taxable foreign exchange differences
As mentioned above it is important to bear in mind that where there is a joint claim for tax credits, the order of set off of trading losses is firstly against current year income of the couple and then by way of carry forward against future profits of the same trade. This is because the tax credit rules say that any trading loss in a year has to be subtracted from the total of the other income of the couple.
Each couple is treated as one claiming unit for tax credits. The set off against the couple's combined household income in the case of a joint claim for tax credits may result in a lower figure of losses for carry forward than the equivalent figure for real tax.
Know your status according to HMRC
Remember that from a tax point of view — each individual is looked at completely separately whereas for tax credits it is the claiming unit, whether single or joint whose income and circumstances must be taken into account. If you have any doubts or concerns about the best way to use your losses you may need to get some professional advice. You can find more about how to report losses for tax credits on form TC You can find it on GOV. From April , new rules were introduced which allow some carry forward of losses between assessment periods. So previous losses can be carried forward, but the carry forward of the loss can only ever reduce the income in an assessment period down to the level of the MIF.
See our website for advisers, RevenueBenefits , for more information.
Skip to main content. What if I make a loss? Updated on 30 December What are trading losses? Example Tom's accounting year ends on 31 March. What can I do with my loss? You can use the loss in the current tax year and set it against all of your other income including income from savings. This reduces the tax that would otherwise be payable on your other income. This is also known as sideways loss relief.
Day Trader vs Investor Status
You can carry the loss back to the previous tax year and set it against all of your income including income from savings. This reduces the tax due on this income, and a repayment of tax is usually generated. For a new business, if the loss occurs in any of the first four years of trading you can set it against your total income of the three tax years immediately before the loss year, starting with the income of the earliest year first.
You can carry forward a loss and set it against profits of the same trade in a future year. This is generally the default position if the loss cannot be used in any other way. This is likely to reduce the tax that would otherwise be due in a future tax year. If your business finishes and you make a loss in your last year, you can set this against your trading profits of the previous three years, latest year first. Use a loss in the early years first four of a trade A loss incurred in the first four tax years of a trade may be carried back and set against the general income of the trader for the three previous tax years, using the earliest years first.
I have had income and losses as follows. Can I get tax relief? Example: Kasper Kasper uses the cash basis for keeping business records and preparing his accounts and Self Assessment tax return. Losses in the final 12 months of trading These rules are quite complicated, so we have deliberately chosen a business with a 31 March year end as this makes things much easier.
Loss used in current or previous tax year You need to claim within one year from 31 January after the end of the loss-making tax year. He will need to make a claim by 31 January Loss carried forward to later years You need to claim within four years from the end of the loss making tax year. She will need to make a claim by 5 April New business losses losses in the first four years of a trade You need to claim within one year from 31 January after the end of the loss making tax year.
She will need to make a claim by 31 January Terminal losses losses in the final 12 months of trading You need to claim within four years from the end of the tax year in which the business finishes.
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Summary of the key features of the various loss relief claims The table below shows all the different loss claims and the key points relating to each for ease of reference. Accounting basis Special Circumstance Type of loss relief Time limit Top tips Accruals basis Use the loss in the current tax year and set it against all of your income including income from savings. Save this article. Send to. Print this page.
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