Spread Betting Versus Shares

Spread Betting: Reduce Taxes On Your UK Trading Profits!

The late Benjamin Franklin is remembered for once famously saying, "There are two things you can be sure of in life - death and taxes!" When an opportunity to make money and not pay any tax on the profit comes along, it's fair to say that most people would take a second glance. Financial Spread Betting falls nicely into this category.

Leverage

Spreadbets are leveraged, so with £1k margin, if you use, say, 10:1 gearing, you can gain the equivalent to £10k's worth of shares. Of course, then it only takes the shares to fall 10% to wipe out your margin. It's the same principle as property investment (with a mortgage). With traditional share dealing more money is required to cover the same amount you could with a spread bet. Of course with leverage comes risk - ultimately it is up to you to use good judgement and use leverage wisely.

Share trading		Spread bet
Current share price	464p	464.7		The slightly higher purchase price is to take into account no commission with spread bets
You buy	10,000 shares	£100 per point		100 shares = £1 per point spread bet. Therefore 10,000 shares is the equivalent of a £100 per point spread bet
Initial cash outlay	£46,400	£4,647		Spread bets on shares only require 10% of the toal trade size as a deposit
Stamp Duty	£232	£0		Stamp duty is not applicable to spreadbets saving 0.5% on all buy transactions*
Commission	£15	£0		Your current stockbroker may charge you a flat rate of £15 for example for a transaction of this size. Spread bets never incur any commission
Total outlay	£46,647	£4,647
You were correct and the share price of ABC Plc rose to 494p over the next month. You decide to close your position.
Current share price	494p	493.3p		The slightly lower selling price is to take into account no commission with spread bets
You sell	10,000 shares	£100 per point		To close an open 'long' postion you sell
Commission	£15	£0
Profit	£2,735	£2,860
Less Capital Gains tax (40%)	£1,101.20	£0		Spread bet profits incur no Capital Gains Tax liability. The rate used is based on a higher earner tax rate. Tax laws can change.
Total Profit after tax	£1,651.80	£2,860
Return on Capital	3.5%	61.5%		The significantly higher return on capital was the result of a much lower initial capital outlay for spreadbets as opposed to share trading
Note, if you were not correct in predicting the direction of price movement of ABC Plc you would lose money. Profits and losses can quickly exceed your initial deposit.