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UK Tax Free Spread Betting Industry under the Spotlight 

Stock-Markets / Spread Betting Dec 16, 2013 - 02:18 PM GMT

By: Submissions


Spread betting popularity remains high, despite dip in numbers!

Brett Chatz writes: The nationwide popularity of spread betting remains high in the United Kingdom, albeit at lower levels than this time one year ago. According to statistics, the numbers of spread bettors reflect a drop of 7000 people from September 2012 to November at 2013. This represents an 8% decline, as indicated by findings from a prominent research company in the UK. The fundamental tenet of spread betting requires the trader to place a bet on the movement in the price of a particular asset. This can also be an index.

Note that no ownership is conferred in spread betting trades. The manner in which spread betting is effectively worked by traders is through the volatility of the financial markets. When greater stability returns to the markets, investors move into equities over spread betting practices. The cyclical nature of upswings and downswings in the market guarantees a healthy spread betting climate, regardless of the strength of the stock market. It must be noted however that spread betting is a viable and potentially lucrative means of rapidly generating high yields.

Traders Feel More Confident about the International Stock Markets

In much the same way as bonds are inversely related to interest rates, spread betting activity thrives in an uncertain equities market. With less volatility, as reflected on the FTSE and the New York Stock Exchange, traders and investors move more resources into stocks over spread betting practices. In flat markets or bearish markets, traders are reluctant to sink their money into poorly performing stocks – hence the popularity of spread betting in recent times. The FTSE 100 index has yielded a 14 percentage point gain in the past year, a good omen for an impending recovery. During the month of October 2013, the surprise interest in owning shares in Royal Mail sparked a media frenzy in the economic world. 700,000 investors applied to purchase shares in Royal Mail. Since the UK financial market is operating near saturation, the movement in an upwards direction is limited. This is not necessarily bad news for spread betting companies, who are now competing with one another for the patronage of existing clientele, rather than attracting new clientele.

UK Treasury Considers the Exemption of Spread Bettors

On the topic of spread betting, the UK Treasury is now looking into what it considers to be a potential tax loophole for traders who use spread betting to generate profits. According to reports that have surfaced recently, the Archbishop of Canterbury feels strongly that severe tax avoidance is taking place with spread betting practices. A treasury spokesman, Lord Newby, in the House of Lords, believes that this issue certainly warrants attention.

This is especially true given that income tax is not paid by spread bettors; neither is capital gains tax, stamp duty and the like. While nothing concrete has been set in stone yet, there is a move in the House of Lords to have oversight and reviews on the issue of spread betting practices in the United Kingdom. As a case in point, it was stated that Australia requires all profits on spread betting to be taxed. Various other members on the Parliamentary Commission on Banking Standards, agree with these sentiments. All manner of ethical trading practices are being considered, especially traders who work with financial services firms and utilize their spread betting accounts to generate profits.

Of course the issue of spread betting is not one that is a problem per se, it is the taxation of profits and the avoidance of taxes that Parliament is looking to get a handle on. For the meanwhile, considerations will be made, deliberations will be held, and finance bills will likely be drafted to include these issues. Presently, traders who make losses cannot claim them as tax deductions.

General sentiment from the British public on the issue of taxing spread betting profits is overwhelmingly opposed to it. The reason being: if spread betting becomes taxable, then so too should gambling winnings, lottery winnings and the like.

This article was contributed on behalf of :

Brett Chatz is a graduate of the Economic and Management Faculty at UNISA. He completed post graduate studies at the University of Haifa.

© 2013 Copyright Brett Chatz - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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