Question
I understand that income taxes do not apply to gambling winnings, so can I bet on stocks and shares?Answer
Gambling winnings are free from both income and capital gains tax in the UK – a welcome bonus if you win the lottery or on the horses.
Although it might seem like a gamble, buying shares doesn’t qualify as gambling for tax purposes (because you own an asset). To save tax you need to consider using your capital gains tax allowance or perhaps hold them in an individual savings account (ISA), which keeps the taxman’s hands off income and gains. But you’ll still pay 0.5% stamp duty on purchases and only higher rate taxpayers save tax on dividends within an ISA.
However it is possible to gamble on share price movements tax-free by spread-betting, which involves betting a fixed amount per point that the share price moves (you can choose up or down).
For example, suppose shares in Company X are trading at 100p and you place a spread bet of £10 per 1p (or ‘point’) that the share price rises. If the share price rises to 110p then you’ll make £100 profit, but if the price falls to 90p you’ll lose £100. The spread betting company will require you to put down an initial deposit (or ‘margin’) of around £50 in this example, but start losing money (even on paper) and this could increase.
As this simple example shows, both the risks and rewards can be high. On an initial £50 stake a 10% rise in the share price could generate £100 of spread betting profit, versus just £5 had you bought the shares. But, unlike buying shares, you can lose a lot more than your initial stake when spread betting. Mike Ashley, the Sports Direct founder and owner of Newcastle FC famously lost £300 million in 2008 when a spread bet on the HBOS share price backfired.
Because shares have a difference (or ‘spread’) between their buying and selling price, this is reflected by the prices used by spread betting companies, in fact they usually add their own small margin too. So in our example Company X’s share bid price might be 99p and the offer price 101p, rising to 109p and 111p when you close the bet. Your gain would be 109p – 101p x £10, i.e. £80.
Spread betting is a very efficient way to play stockmarkets and other investments such as commodities. There’s neither tax on profits nor any stamp duty, plus you can bet on either rising or falling prices. However, there is considerable risk, especially on larger bets per point of movement, so it’s not for the faint-hearted.
I understand that income taxes do not apply to gambling winnings, so can I bet on stocks and shares?Answer
Gambling winnings are free from both income and capital gains tax in the UK – a welcome bonus if you win the lottery or on the horses.
Although it might seem like a gamble, buying shares doesn’t qualify as gambling for tax purposes (because you own an asset). To save tax you need to consider using your capital gains tax allowance or perhaps hold them in an individual savings account (ISA), which keeps the taxman’s hands off income and gains. But you’ll still pay 0.5% stamp duty on purchases and only higher rate taxpayers save tax on dividends within an ISA.
However it is possible to gamble on share price movements tax-free by spread-betting, which involves betting a fixed amount per point that the share price moves (you can choose up or down).
For example, suppose shares in Company X are trading at 100p and you place a spread bet of £10 per 1p (or ‘point’) that the share price rises. If the share price rises to 110p then you’ll make £100 profit, but if the price falls to 90p you’ll lose £100. The spread betting company will require you to put down an initial deposit (or ‘margin’) of around £50 in this example, but start losing money (even on paper) and this could increase.
As this simple example shows, both the risks and rewards can be high. On an initial £50 stake a 10% rise in the share price could generate £100 of spread betting profit, versus just £5 had you bought the shares. But, unlike buying shares, you can lose a lot more than your initial stake when spread betting. Mike Ashley, the Sports Direct founder and owner of Newcastle FC famously lost £300 million in 2008 when a spread bet on the HBOS share price backfired.
Because shares have a difference (or ‘spread’) between their buying and selling price, this is reflected by the prices used by spread betting companies, in fact they usually add their own small margin too. So in our example Company X’s share bid price might be 99p and the offer price 101p, rising to 109p and 111p when you close the bet. Your gain would be 109p – 101p x £10, i.e. £80.
Spread betting is a very efficient way to play stockmarkets and other investments such as commodities. There’s neither tax on profits nor any stamp duty, plus you can bet on either rising or falling prices. However, there is considerable risk, especially on larger bets per point of movement, so it’s not for the faint-hearted.
Read this Q and A at http://www.candidmoney.com/questions/question90.aspx
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