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Is forex trading tax free in the UK?

If you’re thinking about trading forex in the UK, one factor that shouldn’t be overlooked is the potential tax implications.

Her Majesty’s Revenue and Customs (HMRC) is surprisingly generous when it comes to forex trading.

If you choose to trade with a spread betting account, it’s possible to make (or lose) significant sums of money without paying a penny in tax.

The catch is that this only applies to spread betting.

If you choose to trade using CFDs instead, your earnings will be subject to capital gains tax (CGT). While this can be beneficial should you lose money, winning traders will likely be disappointed to learn that they now owe up to 20% of their profits to the government. That said, there’s pro’s to trading CFD’s as opposed to spread betting, which we’ll explain below.

Naturally, it’s important to understand the difference between these two trading instruments before you start trading.

Is Forex Trading Tax Free in the UK: Spread Betting

If you’re new to forex trading, one benefit of spread betting is that it is significantly easier to understand.

Instead of buying and selling contracts, you are simply placing a bet on whether the price of a particular currency pair will go up or down.

You choose an amount to wager per point, and your profit is the difference in price between when you open a trade and when you close it. If the price of GBP/USD was 1.4000 and you believe its going up, you could make a buy order for £10 per point. If the price rises 50 points to 1.4050, you could exit the trade at a profit of £500.

The UK government treats spread betting on forex much the same way as it treats any other kind of bet – as a form of gambling. As a result, despite offering forex traders many of the same benefits as CFD trading, spread betting is not subject to taxation.

Indeed, in answering the question is forex trading tax free in the UK, look no further.

One exception to this rule is if spread betting is your only source of income. If that is the case, then spread betting would be considered your full-time job and, as a result, it would be subject to income tax. But if it’s your main source of income or you make a lot of money, while it might seem odd, you might prefer CFD trading…even if you have to pay a little bit of tax.

Is Forex Trading Tax Free in the UK: CFD Trading

CFD trading is the act of buying and selling contracts for difference (CFDs). Again, your profit is determined by currency fluctuations between the opening and close of the trade.

But rather than placing a bet on a per point basis, you are exchanging the difference in the value of contracts when they are opened and closed.

While they are very similar, the UK government treats them entirely differently.

A CFD is a contract. A contract is considered an ‘asset’ when its comes to taxation. This makes you liable for capital gains tax (CGT). This also means that, depending on your income, you will pay between 10% and 20% tax on any profits that you make. That said, as we’ll talk about more later, any ‘losses’ are tax deductible which makes things interesting. For example, if you make a loss of 10,000 pounds in your first year trading forex, while learning how to trade, this loss is offset against your profits indefinitely. So if you make 20,000 pounds in the future from forex trading, when you get good, you will only be taxed on 10,000 pounds.

If you make a 10,000 pound loss in spread betting, bad luck. You can’t carry it forward to another year, when you get good at trading.

What about Income Tax?

If a forex trader in the UK needs to pay tax, the most likely form that it will take is capital gains.

There are, however, some cases in which HRMC will also expect you to pay income tax on your trading activities.

Ultimately, it comes down to whether or not the government views forex trading as your full-time job or not.

Factors that you need to consider are:

  • Do you have another source of income?
  • Do you pay taxes on another source of income, if any?
  • How often and how much do you trade?

Most forex traders don’t pay income tax in the UK. Why? It’s not their sole income…or they trade forex for extra income.

But the more you earn from the activity, and the less you earn from other sources, the more likely it is that HRMC will take notice.

What about Stamp Duty?

A buyer pays stamp duty when he/she buys and sells shares, which is roughly 0.5%. This is because you ‘own’ the shares. You’re ‘buying’ into a company (i.e. get a share of the company).

This doesn’t apply to spread betting or CFDs at the moment.

This is because while both allow you to profit from changes in the value of currency, neither one involves you actually taking ownership of any.

Spread Betting vs CFD Trading

Given the size of GCT, it’s not surprising that anyone looking for tax-free forex trading in the UK opts for spread betting.

Before basing your decision solely on taxes, however, there are a number of other factors that you should consider.


Spread betting accounts are always shown in UK pounds. This includes your balance, transactions and earnings. So even if your trading another currency, it will still show up in pounds.

It’s different for CFDs.

When your trading CFDs, each transaction is denominated in the base currency of the market that you’re entering. So if you’re betting on the US dollar, your trade will show up in US dollars. This can lead to any profits that you make, further influenced by currency fluctuations.


Spread betting is commission free. You pay the ‘spread’. The spread is the difference between the bid price (buy) and the ask price (sell). A wider (larger) spread means you’re paying more to trade, which is a cost to you. But don’t overthink it. If you’re happy to pay 1.4000 and think its going to 1.4050, then that’s a good deal.

CFDs are often commission based, with the commission based on the cost of the total transaction. That means you pay a percentage of each trade. But, whilst this seems unattractive, there’s positives behind paying commission. You get tighter spreads, the commissions are tax deductible, and the commission percentages are small. You can also opt for no commission accounts with CFD’s, where the spreads are larger like spread betting. Beginner forex traders and swing forex traders prefer this option, as opposed to forex traders who are scalping for example.


Since spread betting is commission free, the spreads offered are significantly wider than when trading with CFDs.

Spread betting is cheaper in most cases. But the wider the spread, the longer it will take for a trade to become profitable.

This naturally makes spread betting unsuitable for particularly tight markets.


The position is settled at the end of the trading day when you make a spread bet. Spread bets can be renewed manually, but having to do this every day is certainly not ideal in a long-term investment.

This doesn’t happen with CFDs. If you’re using leverage, there is likely to be an small overnight financing cost, if you’re holing a position overnight. But provided your balance is sufficient, there’s nothing stopping a CFD from running indefinitely.

Your ‘Start With Forex’ Takeaway: Is Forex Trading Tax Free in the UK?

In conclusion, if you’re wondering whether forex trading tax free in the UK, the answer is yes and no.

It’s definitely possible to trade forex tax free in the UK.

CFD traders are liable for capital gains tax…but you can carry any losses forward to future years.

Full-time traders might liable for income tax as well.

But assuming you choose spread betting, and you have at least one other source of income, anything that you make from forex trading is yours to keep.

I told you there’s pros and cons. But if you’re serious about becoming a forex trader, I’d opt for CFD trading because you can offset your losses against your gains and carry forward losses as well. But, it’s your choice at the end of the day. If you’re confident that a currency is going up or down and want to take the risk, then spread betting might be the best choice. It’s tax free, after all. At the end of the day, learning how to trade forex is essential if you want to get good.

It also helps signing up a forex signal or a forex system provider. That way you can learn how to make the best trades as well.

If you want to learn how to trade forex like a professional, start by reading our FREE forex course. Remember, there’s a million ways to make a million bucks in the forex markets. So if you want a head start in forex trading, alongside our free course, check out our approved products page for forex trading signals and systems to help kick start your trading.

To your trading success,
Start With Forex

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