Forex Traders Tax Guide 2024

Introduction to Forex Trading Taxation

The taxation of forex trading in the UK can seem like a bit of a minefield. You’ll only have to pay tax on your profits – and the tax you pay will depend on exactly how much profit you make.

If your forex trading activity is a side gig and your main source of income comes from elsewhere, you’ll be able to earn up to £1,000 from forex trading annually without needing to pay any tax. Anything higher than this, though, will be taxed at the normal income tax rates.

If you’re a self-employed forex trader you’ll need to register with HMRC and submit a self-assessment tax return each year. If this applies to you, you’ll be taxed on any profits that are over your Personal Allowance threshold.

However, there is also a difference between those who are considered forex traders, and those who are considered forex investors – with taxation rules different for both groups.

Capital Gains Tax vs. Income Tax for Forex Traders

To be considered a forex trader in the UK, your profits are deemed to be income and you will be taxed as described above.

If you are considered a forex investor, though, the way in which you are taxed will be different. Rather than paying income tax, forex investors pay Capital Gains Tax (CGT) on their profits. 

In the 2023/24 tax year, if you make gains of under £6,000 (the Annual Exempt Amount for CGT) you won’t be required to pay Capital Gains Tax on your forex activity. However, any profits a forex investor makes above this limit will be subject to Capital Gains Tax. Currently, this is charged at 10% for basic rate taxpayers and 20% for higher rate taxpayers.

Whether you’re an investor or a forex trader, tax is a vital consideration. To ensure you’re doing things by the book, it’s important to keep the right records and report your gains in the right way.

Essential Record Keeping and Reporting

If you fail to keep accurate records of your trades, accurate calculations of your tax obligations will be impossible.

You should ensure that you keep records of every single trade you make, including:

• The date of the trade
• The time of the trade
• The currency pairs that you traded
• The outcome of each trade
• Any trading-related expenses you incur

Only by keeping these records will you be able to accurately understand your trading profits or losses.

What’s more, you’ll need this information for your forex trader tax return – and to refer back to should HMRC have any questions regarding your submission.

The Tax-Free World of Spread Betting

Spread betting allows you to speculate on how a certain currency will move, without actually making any transactions in the foreign exchange market.

Because of the way it works, spread betting is treated very differently from forex trading when it comes to taxation. Rather than being seen as an income or an investment, spread betting is classed as a form of gambling. This means that you will not be required to pay tax on any gains from forex spread betting.

Be mindful, though, that if your forex activity goes beyond spread betting, you may still be liable for either income tax or CGT payments as we described earlier.

Claiming Trading-Related Expenses

When it comes to forex trader tax, UK traders should be aware that there may be certain expenses they can claim. Claiming expenses means you can reduce your tax liability – but you must get it right to comply with UK tax laws.

Claimable expenses could include the cost of any trading software you pay for, your internet connection fees, subscriptions to data feeds or even any money you spend on training courses relating to forex trading. As with any expenses, be sure to keep accurate records of your transactions for reporting purposes.

If you’re not sure whether something can be classed as a legitimate business expense, take the guesswork out of things by speaking with a professional accountant who is well-versed in forex trader tax. They will be able to advise you on whether the expenses you are looking to claim are legitimate – and may also be able to advise you on other ways to legally minimise your tax liability as a trader.

Forex trading can prove rewarding for those who take the time to fully understand and trade within their preferred markets. However, it’s important to remember that this is classed as taxable income. It will require you to register as self-employed and submit a self-assessment tax return each year: a prospect that may feel daunting to some.

You don’t need to go it alone. At QAccounting, we specialise in accounting support and advice across a number of different sectors, and we’re here to help.

Our clients benefit from their own dedicated Client Manager and our packages are tailored to suit your needs. Whether you’re looking for ongoing bookkeeping or simply someone to help with your end-of-year accounting needs, we’re here to help. With over 20 years of accounting experience, we’re here to make your forays into forex easier with a transparent, easy-to-use service that will free up your time to focus on growing your income.

For more on how we can help with your forex trader tax obligations, click here.