What are the tax advantages of CFD trading?

Discover how CFDs are taxed in the UK here. Including whether you’ll pay stamp duty and capital gains tax (CGT) when you trade contracts for difference, and the tax differences between CFDs and spread betting.

• What is CFD trading?
• Do I need to pay tax on CFDs in the UK?
• Offsetting CFD tax in the UK
• Tax on CFDs vs spread betting
• Tax on CFDs FAQs

What is CFD trading?

CFD trading is a way of speculating on the price movements of financial markets – including shares, indices, commodities and forex – without owning the underlying asset you’re trading. Instead, you buy or sell a derivative called a contract for difference.

When you trade a share CFD, for example, you don’t get a stake in the company. But you do get the same exposure to its share price movements as if you owned the stock itself.

There are several benefits to not owning the financial assets you’re trading. One of them is that you might end up paying less tax – so let’s take a look at that in a bit more detail.

Learn more about what CFD trading is and how it works.

Do I need to pay tax on CFDs in the UK?

Yes, CFDs are taxed in the UK. Any profits you make above your tax allowance will be subject to capital gains tax (CGT). However, you won’t have to pay stamp duty – unlike if you were investing in stocks themselves.

It’s important to note, though, that tax laws will differ from country to country. They are dependent on your personal circumstances and are subject to change.

What is stamp duty?

Stamp duty is a tax that you have to pay when you buy certain assets, including shares. It is currently set at 0.5% and is levied when you purchase a stock online. You shouldn’t have to pay it when you sell shares.

Share stamp duty (called Stamp Duty Reserve Tax) is a different entity from Stamp Duty Land Tax, which you pay when you purchase property.

There’s no stamp duty to pay when you trade CFDs.

What is capital gains tax (CGT)?

Capital gains tax (CGT) is a levy made on profits from financial transactions. Essentially, if you invest in a market and make a profit, chances are you’ll have to pay CGT on those earnings (although some assets are free from CGT).

CGT is part of your tax-free allowance, so you won’t have to pay any until you cross that threshold.

When you trade CFDs in the UK, you will pay capital gains tax on your profits. However, you can offset your losses against them to lower your bill. Let’s examine how that works.

Offsetting CFD tax in the UK

You can offset any losses you make trading CFDs against profits from other trading or investing to lower your overall tax burden. For example, if you lose £1,000 trading CFDs but make £10,000 from other investments, you can deduct the CFD loss against the investing profit for a total of £9,000 taxable profit.

This is all subject to personal circumstances, however, and we’d recommend seeking independent help with your CFD taxes if necessary.

Start CFD trading today

To start trading CFDs on 1,000s of global markets, follow these steps:

1. Open your City Index account and deposit some funds
2. Choose which market you’d like to trade
3. Buy your market if you think it will go up in price, or sell it to go short
4. Set your stops and limits, and choose how many contracts to trade
5. Execute your order

Alternatively, you can practise buying and selling CFDs with zero risk using a free City Index trading demo. This trial platform comes with virtual funds you can use to trade on the live prices of our full range of markets.

Tax on CFDs vs spread betting in the UK

Tax on CFDs works a little bit differently to spread betting. Spread betting is free from both stamp duty and capital gains tax, which means there’s no tax to pay on your profits.* This does also mean, though, that spread betting losses can’t be used to offset profits for CGT purposes.

Find out more about how spread betting works.

CFD trading costs

You might not pay stamp duty when you trade CFDs, but there are other costs involved. These include:

• The spread. The spread is the difference between the buy and sell prices you’ll see listed for a market, and covers your cost to trade indices, forex pairs, commodities and more
• Commission. When you trade share CFDs, you’ll pay commission – however spreads are typically much tighter to compensate for this
• Overnight financing. If you keep a CFD position open for longer than one day, you’ll pay overnight financing to cover the cost of your leverage

Learn more about all the costs of CFD trading.

CFD tax FAQs

Do you have to pay CGT on CFDs?

Yes, as we cover above, capital gains tax is payable on the profits from CFD trading – as long as the profits are outside of your yearly tax allowance. But you can offset any losses from your CFD positions against profits.

How much tax will I pay on CFD profits?

How much tax you will pay on any profits from CFD trading will depend on your individual circumstances, including:

• How much profit you make
• The current level of CGT
• How much of your personal allowance you have used
• Any other investments you have

For more information on current rates, take a look at the gov.uk site.

Are CFDs taxed in the same way as share dealing?

No, CFDs aren’t taxed in the same way as share dealing. When you buy shares for your portfolio, you’ll pay stamp duty; with CFDs, there’s no stamp duty to pay. However, both share dealing and CFD trading are subject to capital gains tax.

Learn more about how to trade CFDs.

*Spread Betting and CFD Trading are exempt from UK stamp duty. Spread betting is also exempt from UK Capital Gains Tax. However, tax laws are subject to change and depend on individual circumstances. Please seek independent advice if necessary.