I keep wondering if they’ll close the tax free loophole some day?

This is lingering concern amongst spreadbetters and of course this might happen with Capital Gains Tax but to be honest it is hard to see the tax situation on betting changing any time soon. One also has to keep in mind that there are now a number of high profile spread betting providers in the City. In the past there have been some pretty sizable donations to some of the political parties – a clear case of ‘you scratch my back and I’ll scratch yours’? I would imagine that the spread betting industry as a whole would be seriously damaged if there was even a hint of the loss of their ‘tax free status on winnings’. Why would punters pay extra spreads with no benefit for them?

So I don’t think they will – the spread betting providers get taxed so the government gets the tax anyway otherwise you would be able to claim tax relief from your losing trades. The government do quite well from the industry by taxing the spread betting companies rather than the punters. If the rules changed then it would more than likely be a case of the extra they take with the one hand they hand back with the other.

Note: Tax treatment depends on the individual circumstances of each client and may change in the future.

And don’t think you are getting a free lunch either! Because there is no Capital Gains Tax on your winnings the government still have to collect their tax somewhere along the line so they charge a levy or performance fee, which is passed onto the betting client and this has to be built into the spread bet price, in other words you pay the tax on the stake not on your winnings. Bit like on course and off course horse racing. Spread betting providers have to build this into the spread bet price for clients to bet on. In addition because you are betting with a counter party there are for example, clearing fees and market spreads that have to be built into the bet spread. So spread betting providers have to quote you a price with all the costs – while trading on an exchange (DMA trading) comes with the additional costs stamp duty, clearing fees, brokerage…etc

CMC Markets’ founder Peter Cruddas was quoted saying ‘The taxman does very well out of UK spread betting, since he gets to take a clip of every trade. If they are waiting for the client to make money and declare a capital gain it could take forever.’

Meanwhile quoting Ian from Spread Co ‘I can’t see the tax free regime changing in the next 2 years, I think it will be very difficult to address this and change it. It may happen that it comes in line with the CFD way (stamp duty free but not CGT free), but I think that is 5+ years off at least.’

Some people are surprised that no income tax arises from spread betting winnings. However, it was held as far back as 1925 in the case of Graham v Green that ‘a bet is merely an irrational agreement that one person should pay another person on the happening of an event’ and therefore not a trade.