How is day trading taxed in the UK?

What is day trading?

Day trading is a form of active trading that involves opening and closing a position on the same day in an attempt to take advantage of small price movements within the market. Generally speaking, day traders take multiple positions throughout the day, often on different asset classes.

With us, you have the choice to day trade on shares, indices, commodities, and forex.

To gain greater exposure to the markets, it’s common to trade on leverage. This means you open a position much larger than your initial margin so your profits and losses are magnified.

While this creates trading opportunities, it comes with an increased risk and you could gain or lose money very quickly. It’s important to have a risk management strategy in place before you begin day trading.

How is day trading taxed in the UK?

Day trading is tax-free¹ in the UK for most residents who do so using a spread betting account. Most people won’t pay stamp duty or Capital Gains Tax (CGT), meaning you would keep 100% of your profits.

The other most popular way to day trade in the UK is using a CFD account. Most people won’t keep 100% of their profits when trading CFDs, because profits are subject to CGT.

The amount you pay is dependent on income. If you’re a basic rate taxpayer, you’ll be taxed at 10% and if you’re a higher rate taxpayer, you’ll pay 20%.

However, when trading CFDs, you may use them to offset losses against gains, meaning they could form a useful part of a hedging strategy.

It's important to remember that tax laws are subject to change and differ depending on personal circumstances and the country you are trading from.

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.

If day trading CFDs is your secondary form of income, the first £1000 of profit is tax-free.¹ The percentage you’re taxed will depend on your yearly income, but you won’t have to pay stamp duty on either product.

Day trading tax example: buying Vodafone shares

Here’s an example of how you could be taxed for day trading in the UK. This is based on the assumption that you want to buy 5000 Vodafone shares contracts or £50 per point and, where applicable, you’re exempt from stamp duty and capital gains tax.

Because you believe Vodafone shares will rise over the course of the trading day, you buy 5000 shares (go long) in the hope of selling them at a higher price later in the day. If the share price does rise in price, you’ve made a profit but if they go down, you’ve made a loss.

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 day trading

1. Go long or short – when trading spread bets and CFDs, you can take a position on rising and falling markets by going either long (buy) or short (sell). If judged correctly, this provides the opportunity to profit from both rising and falling markets, but if the market moves against you, you’ll make a loss.
2. Take your capital further with leverage – gain greater exposure to the markets by opening a position much larger than your initial deposit. Please note trading with leverage comes with an increased risk so you could gain or lose money faster than expected.
3. Manage your risk – to minimise your losses, it’s important to have an effective risk management strategy in place. Tools such as stop losses and limit orders can be highly effective in doing this.
4. Day trading strategy – there are many different ways to day trade. These include scalping, mean reversion, money flows, trend trading and swing trading. Each method comes with its own pros and cons so it’s worth looking into each of them before you begin day trading to see which one best suits your needs.

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