Binary trading taxes uk
Traders predict whether the value of an asset will rise or fall by a certain time. They then choose the amount they wish to risk on their prediction and enter into the trade. Though you only have two options to choose from — call or put — you must still analyze the market to determine which direction prices are likely to go. Binary options in the UK involves stocks, indices, commodities and currencies. The exact assets available vary based on the broker you choose. Once you choose an asset, you have to choose the type of trade you want to make.
A call means you think the value will rise and a put means you believe the value will fall. Binary options are a legal financial trading option in the UK. The exact deposit and withdrawal methods for UK traders vary based on the broker you choose. Most brokers in the UK offer at least Moneybookers, bank wire transfer and credit card options for depositing and withdrawing funds.
Others may also offer additional options. You should also be aware that traders are responsible for paying taxes on their earnings. The amount varies based on how you file and classify the earnings. Your trading experience in the UK is mainly based on the broker you choose. For most individuals, HMRC is likely to consider this activity as betting, which means any profits made from it will be outside the scope of both Income Tax and Capital Gains Tax.
However, if that same transaction is carried out for commercial purposes; for instance, if it is made strategically as a hedge to offset the risks attached to direct investment in a security , any profits that arises from it might be regarded as part of a wider pattern of activity attracting tax liability. For more information on this, see guidance note BIM The consequence of purely speculative, gambling or betting activity is that profitable transactions from it do not generally attract a tax charge.
However, the potential downside of this from your point of view is that you cannot claim tax relief on losses from this type of activity. An option, in the eyes of HMRC, is an agreed right to buy or sell an underlying asset at a specified price within a specified timeframe. It tends to have an inherent value in itself which carries CGT implications.
See CG for the formal definition. Binary options present individuals with the opportunity to benefit from fluctuations up or down in, for instance, the price of individual shares or the performance of indices such as stock markets or currency markets. These are derivative products; which means you do not have any ownership in the underlying asset at no point do you own the share in question, for instance. In fact, there are only two possible outcomes once the option expires: HMRC will almost always regard this as a form of gambling: Cases that have gone before the courts help to shed light on this.
A more recent case Hakki v Secretary of State for Work and Pensions  EWCA Civ concerned a professional poker player who made a living through his winnings and who was facing a child maintenance payment order from the Child Support Agency. The Court of Appeal once again confirmed the general principle that gambling is not a trade.