Does anyone have a view on how changes to capital gains tax might affect spread betting firms e.g. IG group? I'm thinking that they may attract a lot more business if CGT on profits from shares rises - to the detriment of companies such as Hargreaves Lansdown
The problem with applying CGT to spread betting is simple: most people lose, and would HMRC want people to be able to offset spread bet losses against other sources of income/capital gain?
Good point, but don't most people lose investing in shares, I have seen figures such as 90% quoted but that is hard to believe.
If doing spread betting instead of share dealing, would the results be much different?
Thanks Herbie,
Not sure about Trading121, but Trading212 looks very interesting :-)
Thanks again - Pete
I've heard good things about the T212 ISA. I'm moving my better half's and my own ISA across to them from Interactive Investor. I trade mainly US shares and the 1.5% FX (3% both ways) is daylight robbery. Also, you can't own many attractive ETF's... such as the ARK ones.
As you say, T212 doesn't charge an FX fee, but there is an FX rate... I think around 0.1%.
On the spread betting front try IG. They have a good demo account so you can 'get a feel' for the platform. One benefit I've found with IG is the stop loss function is brilliant thus making it 'more convenient' to control risk... as one would!
JC
Will perhaps encourage investors to hold more ininvestment trusts as the managers can swap investments in companies without paying capital gains tax (this would also apply to other collective investments).
Hello Jack
A little research on Trading212 has show a lot of complaints on Trustpilot at the moment. Also I tried searching their list of shares and ETF's for the tickers ARKK and ARKQ, neither could be found, appreciate its cheapness may still be important enough to you.
I have an IG account thanks - I'm playing with automated trading using their software API - IG Labs - no success yet :-( but thanks for the suggestion,
Regards - Pete
"reading the posts below kind of suggest that Isa’s should be the CGT target!"
I'm sure that money already in ISAs is quite safe from CGT, we tend to be quite good at respecting existing built up rights in the UK. However, the annual ISA allowance of £20k would be an obvious target for reduction. That has increased massively ahead of inflation since the £3.6k cash/£7.2k combined allowance of a couple of decades ago, heck even 5 years ago it was only £15.24k. Realistically an allowance of 20k a year is a tax perk for the well off, I'd quite happily see it reduced substantially (well, I wouldn't be personally happy as such, but I wouldn't complain).
On the other hand, the ISA tax perk on money contributed now essentially builds in the future as the money compounds, so the tax hit may be borne by the next government rather than the incumbent. In constrast, the pension tax top-up is paid immediately by the current government. Hence I could see ISAs escaping in favour of less pension top-up simply because the tax cashflow to the government is more immediate, even if that is worse policy long-term.
Back to the original question, I would have thought that harsher CGT on trading accounts would result in some greater uptake of spreadbetting accounts. After all, if one inherits say £500k, not a crazy sum by any means given house prices, it would be increasing at greater than the rate at which even a couple could get it into ISAs at even a 10% pa return. A spreadbetting account with zero leverage would be an obvious home, swapping CGT on gains for funding charge or spread rollover on the entire amount. However, for very long term holdings that could be a false saving. 10% compounded over 10 years gives a 2.6x return. 7% (i.e. 10% minus 3% funding costs) compounded over 10 years gives 2x return. I.e. you've lost 24% return over the 10 years of a long-term hold in that example. How much is CGT again?
Regarding the spreadbetting companies (I hold £IGG), I imagine that an increase in sophisticated rich clients would be good in the short term, but continued use of spreadbetting by net successful clients might cause a problem in the long term eventually attracting CGT. If this did occur I imagine it would be a big negative shock to their share prices.
Is the spreadbetting tax advantage a uniquely UK thing, or do similar investment-as-gambling tax dodges occur in other countries as well?
Yes, likely the CGT rate will increase and perhaps the £12k allowance will be cut. Also rumblings about reducing the tax benefit of pension contributions to the lower rate for higher rate taxpayers, I suspect this is also likely it'll net a lot of tax from a small number of people.
Spreadbet firms typically charge an overnight funding fee for long positions, so maybe more suitable for trading than long term buy and hold investments. So, it depends on your holding period.
I recall spreadbet firms in the UK operate under the sports betting regulations, hence no CGT for the UK firms, abroad firms fall under their respective tax regimes. HMRC have not chased it down as the majority of people lose on spread bets and their capital losses would have to be recognised as well.
Yes. they may delay your buy or sell order for 24 hours and you can not cancel it. It happened twice with me. Lost some money because of that.
Currently spread betting is not liable for stamp duty, capital gains tax or tax on dividends. That benefit has to be set against the interest paid on the bets. This works out at around 3% per annum on the nominal investment on a daily funded basis (DFB) but if you buy on a longer term basis by paying a larger spread, the interest only works out at about 1.5% per annum on the nominal amount. (The calculation of interest rates is not quite as straightforward as one might like, but I believe 3% and 1.5% are reasonable approximations.) For anyone new to spread betting, the nominal amount of a bet is the amount that the spread bet would be worth if invested conventionally. (If you bet £1 a point on a share valued at £100 the nominal holding is £10,000.)
So, to come to the point, if a nominal DFB holding is worth £100,000 and the annual return is 7%, the investor would pay £3,000 in interest on a return of £7,000 or 43% of the profit. This compares unfavourably with CGT at 20%. Even at 1.5% interest, the cost is £1,500 (21.5%). For investors earning a large enough annual return to have to pay CGT, they would have to earn >10% to make it worthwhile to to hold their account as a spread bet. And this calculation is based on the assumption that there will be no CGT allowance on any gains at all. Currently, a married couple can make a capital gain of about £25,000 a year without paying CGT. Whilst that allowance may be reduced significantly it is unlikely to vanish entirely.
The bottom line is that, until we find out the exact nature of the changes in CGT, we cannot be sure that spread betting accounts are a tax effective way of investing for the majority of retail investors. At present, I estimate that spread betting is only tax effective for bettors who make an income well above £25,000 per annum from their betting, and my guess is that that is only a tiny proportion of us.
Interesting to find this topic as had been thinking this move would boost the spread bet companies.
Looks like the changes may be further away than originally feared (looking more like 22/23 FY is recent leaks are to be believed.
From a personal perspective, my wife and I max out our ISAs every year and still have funds outside of wrappers to invest (before anyone asks I also max out my pension contributions (mainly in fear that the allowances will be changed!)).
For the last 3 years we have maxed out our CGT allowance (for the record my ISA performance during this period has been extremely poor - my winners are always in my taxed account!!) and as a result this year I have started spread betting too. Costs are high (extra spread and financing costs) but vs a current CGT rate of 20% (for me) I think it is worthwhile and if the rate was aligned with income (40%) it would be a no brainer. Added to that the ability to use leverage (sensibly) is a bonus but only in terms of not tying cash up.
Not sure if their would be enough people in a similar position to me to really move the dial for the spread bet companies but as I would guess these individuals are likely to be investing larger sums than the current average customer, it could be significant.
One to keep an eye on / research further imho
Thanks for the insight Alex - Trader212 is now sounding like a bit of a joke, I'm probably back to Plan A now that CGT changes do not look like being on this weeks agenda, or more probably plan B - just pay HL's 1% each way FX charges,
Yes I looked into Trading212 some more and have gone right off them, I won't be trusting them with any of my money.
Looking to open an IGG ISA, their fees seem to have gone down recently, if you are a frequent trader, more than 3 trades per month, then US shares have no trading fee, there is 0.5% fee.
UK trades are £8, but only £3, if you traded 3 times in the previous month.
Seems a fair bit cheaper than HL.
Hi herbie47, I don't know if you are aware of Pareto's Principle but he discovered the 80/20 rule, ie, roughly 80% of consequences come from 20% of the causes.
Pareto who is/was an Italian economist, noticed that the top best 20% of his plants produced 80% of his crops. That the wealthiest 20% of Italians owned 80% of the land. That the world's wealthiest 20% of people own 80% of the world's wealth. That the top 20% of people pay 80% of the taxes.
It is also the case that 80% of investors lose money in the stock markets and so it follows that only 20% of investors make money. So you weren't a million miles out when you mentioned the 90% figure.
That's an excellent find Herbie, thanks very much for the info.
I did a practice £2k trade on HL over the last week, the £200 gain (in dollar terms) was reduced to £100 after all the costs.
It sounds like profit with IG would have been about £170'ish, so definitely worth giving it a go, especially if you can apply stops to the trade as these are not available on HL !!
(The profit would have been a little more but currency rates moved between the buying and selling)
Thanks again - Pete
Thanks @Herbie,
Yeah, I also looked more into IG.com's SIPP/ ISA offering and looks to be much more cost effective to buy/ sell US Stocks, versus AJB given their FX fees.
So going to put in a transfer request over the weekend. I use IG.com as my main platform interface for trading/ investments in any case.
Spl183
Just an update on IG.
As I had not done my ISA for this tax year yet, I decided to try IG. The information on the website, was not very clear to me, seems I had to open a share dealing account first and then add an ISA later. So this is what I did, I did not add any funds, as I don't want to trade in the share dealing account, only an ISA. Got confirmation and account number then nothing, looked on the site about ISA account and could not find anything, so I phoned up IG support, at around 2pm, had to wait for 70 minutes before anyone answered, at least HL answered within 2 minutes when I phoned up.
Anyway he told where the ISA part was and I did manage to add it. When I asked if it takes this long normally he said I should phone in the morning as they are very busy when the US markets are open. Checked 2 prices today with quotes and they are exactly the same price on £IG. and Hargreaves Lansdown (LON:HL.) which is good to know, the 2 shares were Central Asia Metals (LON:CAML) and £K3C with 500 shares order.
To be honest, on my computer, I prefer the HL platform, this maybe partly because I'm used to HL, but IG is easier (less secure?) to sign on and you don't get logged off, after 5 minutes which really annoys me on HL. No phone verification either, which means if I'm abroad it will be much easier for me to trade. I have not tried IG on my iPad yet.
Fees with IG will be lower, if the share prices are the same, I'm now considering moving my cash in HL ISA to IG.
Snap - I requested a cash withdrawal from HL yesterday, and opened the IG ISA just now. It was straight forwards as I have a spread bet account so simply added an ISA to my existing log in. Funding was a little dodgy - it said the request to transfer funds had timed out, but it appeared in the account fine. Two minutes for the W8BEN so now good to go :-)
Thanks again for finding this, and good luck with the investing...
Pete
