TaxScouts -> Guides
- 3 min read
- Last updated 8 Apr 2024
So, do forex (fx) traders pay tax? As you might imagine, the question isn’t as simple as it sounds. The majority of forex traders lose money, so it’s not in HMRC’s interest to allow everyone to offset their losses against their other income.
As a result, there are different rules for different trading instruments. And it all also depends on your profits.
There are four types of tax that are relevant to forex traders:
- Income Tax – tax you pay on your overall earnings
- Corporation Tax – tax you pay on your limited company earnings
- Capital Gains Tax – tax that you pay on your profits from selling assets
- Stamp Duty Reserve Tax – a tax or duty that you pay when you buy shares
This guide is for sole traders and those who are fx traders on the the side of full time employment.
Trading is a side gig
If forex trading is a side gig, you are covered by the Trading Allowance. It allows you to earn up to £1000 of extra income tax-free. Anything that you earn in profits over £1,000 will be taxed at the standard 2024/25 Income Tax rates.
Income Tax in the 2024/25 tax year
| Income | Tax rate | |
| Up to £12,570 | 0% | Personal allowance |
| £12,571 to £50,270 | 20% | Basic rate |
| £50,271 to £125,140 | 40% | Higher rate |
| over £125,141 | 45% | Additional rate |
Trading is my main source of income
As a full time self-employed fx trader, you’ll be taxed on all of your profits over the tax-free Personal Allowance.
You’ll need to register as self-employed by declaring your income to HMRC by 5th October. After this, you will pay the tax you owe via a tax return.
Read more about the Self Assessment tax return process here.
Is Spread Betting tax free?
The type of instrument that you trade with affects the way that you’re taxed.
Spread Betting, for instance, is classed as gambling. As you don’t own the assets you’re betting on, you’ll not be liable to pay Capital Gains Tax or Stamp Duty on the money you make from it in the UK.
Contracts for Difference (CFDs) are a little different in tax terms. Whilst you don’t have to pay Stamp Duty on CFDs, you will be liable to pay Capital Gains Tax when you buy and sell them.
Take a look at our Capital Gains Tax calculator to see what you might owe.
Your situation
Tax and profit
Your profit from
shares£20,000
£3,000 tax-free CGT allowance
?
Capital Gains Tax to pay
£3,273
Profit after tax
£16,727
How your capital gains tax is calculated
The total capital gains tax (CGT) you owe depends on two things:
- How much you earn in total
- What type of assets you sell
Your overall earnings determine how much of your capital gains are taxed at – 10% or 20%.
Our capital gains tax rates guide explains this in more detail.
In your case where your capital gains from shares were £20,000 and your total annual earnings were £69,000:
Capital gains tax (CGT) breakdown
You pay no CGT on the first £3,000 that you make
You pay £127 at 10% tax rate for the next £1,270 of your capital gains
You pay £3,146 at 20% tax rate on the remaining £15,730 of your capital gains
Tax bill amount £3,273
I want to pay by
Savings frequency
You need to save
£4.91 per day
to pay your £3,273.00 tax bill by 31/1/2026 which is in 666 days
Are there any more considerations?
Yes, there are a few things to consider when working out whether or not you might owe tax on your trading profits.
First of all, there are expenses. If you’re a full time fx trader and you’re not claiming the Trading Allowance, you’re allowed to deduct your expenses from your income when you work out your taxes. Allowable expenses are basically anything that you’ve spent wholly, exclusively and necessarily on your trading business.
Secondly, you should consider the size of your trading business. Questions like the below are important to ask yourself when questioning whether or not you owe tax:
- How much do you earn overall?
- How often and how much do you trade?
- Do you pay tax on the rest of your income?
- How much tax do you normally pay?
If you’re earning a lot from trading and you’re not yet paying tax on your profits, the chances are that HMRC will come knocking before too long.
Not sure if you owe CGT?
We can help. We offer one-off, personal tax advice from an accredited accountant. Speak toCGT accounting expert and clear up any confusion about your trading liabilities. Just £139 per consultation with no strings attached. Learn more.
See more on:
- capital gains tax
- employment status
- invest
