How are CFDs taxed in the UK?

• CFDs allow traders to speculate on the price movements of underlying markets without taking ownership of the asset, but they may still be subject to certain taxes depending on individual circumstances.
• While CFDs are exempt from Stamp Duty in the UK, profits that exceed the £3,000 annual Capital Gains Tax allowance may be liable for CGT at rates linked to a trader’s income level.
• In some cases, active CFD trading activity may be classified as trading income by HMRC and taxed accordingly, depending on factors such as frequency, intent, and source of finance.
• Unlike CFD trading, spread betting profits are generally exempt from Capital Gains Tax because they are treated as gambling rather than investment activity, although risks still apply.

A CFD, or ‘contract for difference’, is a leveraged financial derivative. They allow traders to speculate on the movement of underlying markets, predicting whether an asset's value will rise or fall over a set period.

Unlike in futures trading, traders don’t take ownership of the underlying asset when trading a CFD. This means that the most common CFD trading strategies tend to differ from those for other derivatives.

For a full explanation, you can read our ‘What is CFD trading?’ guide for a more detailed breakdown of the market.

While CFDs are exempt from certain running costs in the UK, they aren’t entirely tax-free, and it’s important to remain aware of the extra fees that trading them could incur.

Stamp Duty

The UK’s Stamp Duty Reserve Tax, which is typically applied to all British shares and securities purchased electronically, does not apply to CFDs. This is because the issue or closure of a CFD does not involve the purchase of a ‘stock or marketable security’ or ‘chargeable security’; CFDs instead speculate on market price movements.

Capital Gains Tax

If a trader's total gains from CFD trading exceed a certain threshold, they will have to pay Capital Gains Tax (CGT) on their profits. Anyone who trades on markets in their spare time will have to pay CGT if their annual profits are higher than the CGT allowance (or Annual Exempt Amount) of £3,000.

Notably, the AEA has decreased in recent years, from £12,300 up to 2023 down to £6,000 in the 2023/2024 tax year and now to £3,000 since 2024. This means more traders are likely to be caught in the net and need to pay.

Income Tax

In some cases, HMRC may classify active traders as trading income and charge income tax accordingly. HMRC takes many factors into account, known as badges of trade, including (but not limited to):

• If the motive behind the trade was profit
• The number of transactions, and whether they are systematic and repeated
• Existence of similar trading transactions or interests
• The source of the finance
• Interval of time between purchase and sale
• Method of acquisition

HMRC has broad discretion in these cases, and their determination will vary on a case-by-case basis; this also does not consider other circumstances, such as corporate entities, non-UK residence and foreign entities.

Please note: If you’re unsure whether you need to pay tax on your CFDs, we recommend seeking professional advice to discuss your situation.

How much do CFD traders have to pay in Capital Gains Tax?

The rates of CGT that CFD traders are required to pay vary, depending on the income tax a trader typically pays to the government. Typically, individuals with higher incomes pay more tax each year, meaning their trading profits are more likely to be affected by CGT.

For basic-rate taxpayers, the standard CGT rate is 18%. This only applies if a trader's chargeable assets exceed £3,000 annually. For higher- or additional-rate taxpayers, however, this rate increases to 24%.

When a trader closes a CFD position at a profit, that gain becomes part of their total chargeable assets. If their other chargeable assets are below the standard for paying higher-rate tax, but their CFD profits take their income to a higher total than the threshold, then a mix of both rates will typically apply to their trading.

Learn more about Capital Gains Tax rates.

How to calculate CGT

Let’s look at a real-world example of CGT calculation to show how it can affect a trader's profits. In this scenario, a CFD trader with an annual salary of £40,000 has made £10,000 in profits from their trades.

The trader’s overall profits are higher than the £3,000 threshold for tax-free CGT allowance, so they will have to pay an extra fee on their earnings. After this allowance, the taxable gain is £7,000.

Since the trader’s £40,000 salary makes them a basic-rate taxpayer, an 18% CGT applies to their profits from CFD trading. This means that £1,260 in tax is paid on the next £7,000 of capital they earn.

One of the many differences between spread betting and CFD trading is that spread bets are generally exempt from CGT. This is because HMRC classifies spread betting as a form of gambling, rather than an investment. Since a spread bet is a speculative prediction on the movement of an asset’s price, where betters aren’t buying shares, contracts, or commodities, the profits from spread betting aren’t treated as capital gains.

Providers of spread betting are still required to pay tax to the government, but this is a form of gambling duty rather than CGT. Most platforms will incorporate this tax into the spread rather than requiring the client to pay a fee on their winnings. 

As with any other form of trading or market betting, spread betting comes with a degree of risk. Profits are never guaranteed, so it’s important for a trader to manage their finances responsibly and never trade with more than they can afford to pay.

Now that you know the basics of CFD trading taxation, why not start your trading today? Sign up for a Trade Nation account and start trading on a wide range of financial markets!

Please note: The information on this page is provided for general information purposes and should not be construed as financial or tax advice, nor does it constitute any recommendations from Trade Nation. Tax circumstances can vary; please contact a professional adviser for financial advice or support.