How is forex trading taxed in the UK?
Forex is the world’s largest financial market. Here’s some important information about the tax you’ll pay when trading forex in the UK.
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What is forex trading?
Forex trading refers to the conversion of one currency to another in the hope of making a profit. For example, if you believe the pound will strengthen in value compared to the US dollar, you could sell some dollars in exchange for pounds with the view of buying back those dollars at a later date, hopefully at a lower price.
Currencies are always traded in pairs, so when you buy one (base currency) you sell another (quote currency).
Forex is the world’s largest financial market. With no centralised exchange, it’s very accessible and can be traded almost 24/7 so you can get exposure to rising and falling currency values around the clock.
It’s worth noting, however, that the forex market is often volatile and while this creates trading opportunities, it also exposes you to greater risk so you could gain or lose money faster than expected.
How is forex trading taxed in the UK?
Forex trading is tax-free1 for most UK residents who trade FX using a spread betting account. Most people won’t pay Capital Gains Tax (CGT) or stamp duty, meaning you would keep 100% of your profits.
The other most accessible way to trade forex in the UK is with a CFD trading account. With CFD trading, you won’t pay stamp duty, however profits may be subject to CGT. The rate at which you pay is dependent on your income. If you’re a basic rate taxpayer, you’ll pay 10% and if you’re in a higher threshold you’ll pay 20%. If forex trading is your secondary form of income, the first £1000 of profit is tax-free.1
However, CFDs allow you to offset losses against profits, meaning they could be used in hedging strategies. It's important to note that tax laws are subject to change and differ depending on individual circumstances and the country you live in.
Please note that we don’t offer any tax advice to our clients. If this is a service that you’d like, we recommend consulting with a tax advisor to discuss your personal circumstances.
| Spread betting on forex | CFD trading on forex | |
|---|---|---|
| Ownership of asset | No ownership | No ownership |
| Capital gains tax (CGT) | Profits are exempt, but can’t offset losses against CGT1 | CGT payable on profits, but can be offset against losses1 |
| Stamp duty | No stamp duty payable1 | No stamp duty payable1 |
Forex trading tax example
Here’s an example of how you could be taxed when trading forex in the UK. It’s based on the assumption that you believe that the pound will rise against the US dollar and, where applicable, you’re exempt from CGT and stamp duty.
Because you believe GBP will rise against USD, you decide to buy GBP/USD. This means you’ll profit if the pound does rise against the dollar.
*Please note this table is simply to demonstrate a possible outcome and may not be applicable to everyone trading in the UK. Your individual circumstances may mean the amount of tax you’re required to pay is different and it’s worth contacting a tax advisor to confirm this.
| Spread betting | CFD trading | |
|---|---|---|
| Exchange rate | GBP/USD 12732.1 £1 = €1.27321 |
GBP/USD 1.2732 £1 = €1.127321 |
| Cost to open and close | 0.9 spread | 0.9 p |
| Sell/ buy prices | 12731.7/12732.6 | 1.27317/1.27326 |
| Deal | Buy (go long on) GBP/USD at $10 per point of movement | Buy (go long on) GBP/USD |
| Margin factor | 3.33% | 3.33% |
| Initial outlay | $ 4239.96 You open your position at a total size of $10 per point. $10 x 12732.6 x 3.33% margin factor = 4239.96 |
$4239.96 You buy 100,000 GBP/USD CFDs with a contract value of $10. 100,000 x 1.27326 x 3.33% margin factor = 4239.96 |
| Capital gains tax | None | Subject to capital gains tax, but can be offset against losses1 |
| Stamp duty | None | None |
* Table updated August 2023
Other things to know about FX trading
- Go long or short – when trading with derivatives you can go long (buy) or short (sell) providing you with exposure to rising and falling markets
- Trade out of hours and on the weekends – our extended hours allow you to trade from 9pm on a Sunday to 10pm on a Friday. We’re the only trading platform to offer weekend trading so you can trade flexibly, around your schedule
- Take your capital further with leverage – put down an initial deposit which is a fraction of your trade size to open a position. Please note trading with leverage comes with an increased risk so you could gain or lose money faster than expected. You could even lose more than your initial deposit. Because of this, it’s important to constantly monitor your position and take steps to manage your risk at all times
- Trade spot, forwards and options – use either a CFD trading or spread betting account to trade spot, futures or options
FAQs
What tax do you pay on forex trading?
When trading forex, you may have to pay income tax or CGT. The kind of tax you’ll have to pay will depend on your personal circumstances and the instrument with which you choose to trade. It’s worth checking on both factors to get an accurate view of the tax implications relevant to you. If you’re unsure, it’s worth checking with a tax advisor.
What instruments can you trade forex with in the UK?
You can trade forex with us via derivatives such as spread bets or CFDs. With derivative trading, you can open a position on the price movement of specific currencies by going long or short without ever owning the asset.
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Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK. |
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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Professional clients trading spread bets and CFDs can lose more than they deposit.
Options and futures are complex instruments which come with a high risk of losing money rapidly due to leverage. They’re not suitable for most investors. Before you invest, you should consider whether you understand how options and futures work, the risks of trading these instruments and whether you can afford to lose more than your original investment.
Trading stocks and shares ‘on margin’ within a US options and futures account – meaning that you only finance part of the cost of acquiring a position in a security – carries additional risks over buying securities on a fully funded basis and may result in losses exceeding your original investment. Trading on margin will also result in additional costs to you as the investor and any securities purchased using margin may be held as collateral by the lender, restricting both your rights as shareholder, and your ability to use the securities until the margin trade is closed. You should familiarise yourself with these risks before trading on margin.
The value of shares, ETFs and other ETPs bought through a share dealing account, a US options and futures account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing.
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