How is forex trading taxed in the UK?

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.

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.

Other things to know about FX trading

1. 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
2. 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
3. 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
4. Trade spot, forwards and options – use either a CFD trading or spread betting account to trade spot, futures or options

Try these next