How Does the HMRC Tax Your Income From Forex Trades?

 

Taxes constitute a significant part of government revenue, and that’s why every UK resident/citizen must file tax returns. If you earn a living from online investments, your tax returns may take a different method than those of regular 9–5 workers, but you’ll pay taxes, depending on your category.

Forex Trading and Taxes in the UK

Trading forex in the UK via regulated brokers provides alternative income for many people, especially the younger population. As taxes normally apply to income, traders must understand the category of tax rules that apply to them. If you have been trading profitably without paying taxes, you might want to check out your tax returns for the period and update the HM Revenue and Customs (HMRC) with your new income rates.

 

Forex trading taxes are not direct because they depend on various conditions. Therefore, two traders may have different tax realities despite trading in the same markets. Four tax categories may affect you as a forex trader:

 

1. Capital Gains Tax (CGT): This is paid based on the profits you make from selling your assets.
2. Income Tax: This is tax paid on your total earnings for the specified period.
3. Corporation Tax: This is paid on the earnings of any limited company you own.
4. Stamp Duty Reserve Tax (SDRT): You pay this when you buy securities.

 

One or all of these four categories may apply to you as a UK-based forex trader. Let’s dive into how they work.

Tax for Part-time Forex Traders (Individuals)

If trading is a hobby for you, i.e. it is not a full-time job, and you have not registered as a company engaging in forex trading, or as a self-employed forex trader, you may only be taxed for profits above £1,000.

 

This is possible under the Trading Allowance rule, which allows traders to keep 100% of their first profits under £1,000. Taxes do not apply to day traders as day trading is considered short.

 

You will be taxed according to the Income Tax rules when you profit above that amount. The UK Income Tax for 2024 stipulates:

 

 

Band	Taxable income	Tax rate
Personal Allowance	Up to £12,570	0%
Basic rate	£12,571 to £50,270	20%
Higher rate	£50,271 to £125,140	40%
Additional rate	over £125,140	45%

 

You will not receive a Personal Allowance on forex income above £125,140, but you can claim tax relief if qualified — this will reduce your total tax expenses. You must register as a full-time trader with the HMRC if you earn above the Personal Allowance. This usually involves declaring your income and then filing the appropriate tax returns.

 

Capital Gains Tax (CGT)

In the UK, spread betting and contracts for differences (CFDs) are the two most accessible ways (instruments) to trade forex; this knowledge is crucial to understanding how Capital Gains Tax works for forex trading.

 

The HMRC considers spread bets gambling, so the profits are not taxed. Spread betting traders, however, cannot offset their losses against Capital Gains Tax. You also won’t have to pay a Stamp Duty Reserve Tax.

 

If you trade CFDs on forex, you’ll have to pay capital gains tax,  even though you don’t own the underlying currencies as assets. You also don’t have to pay a Stamp Duty Reserve Tax. The 2024 Capital Gains Tax rate is:

 

 

 

Rate	Amount
10% (18% for residential property)	Overall annual income below £50,270
20% (24% for residential property)	Overall annual income above £50,270

 

CFD traders can offset their losses against their Capital Gains Tax in the UK. This is an essential factor for many traders when choosing their trading instruments. Confirm with your broker that you can trade both spread bets and CFDs.

Tax for Forex Trading Companies

If you have a registered forex trading company in the UK. The current rates the UK government sets are 19% for companies under £50,000 and 25% for profits over £250,000. Your company may qualify for a corporate tax Marginal Relief; you can use a marginal relief calculator to confirm.

 

Trade and File Your Taxes Precisely

Forex trading in the UK has come a long way, and while the industry is heavily regulated, the tax paid by traders is essential to the government’s revenue. Knowing how forex trading is taxed will help you comply with the HMRC’s directives. You don’t have to pay taxes if your forex profits are under the Personal Allowance limit or trade spread bets, but remember, you cannot claim tax reliefs. Profits from the basic rate and over are taxed for individuals and corporate bodies, and you can file your taxes using the appropriate forms in such cases. Finally, ensure you trade with a reliable broker that breaks down your forex activities to make the process smoother.