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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
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Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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BACKGROUNDeToro (http://en.wikipedia.org/wiki/EToro) is

Resolved Question:

BACKGROUND

eToro (http://en.wikipedia.org/wiki/EToro) is a social trading platform which lets traders to trade forex, commodities and stocks. People can carry out own trades, copy other traders automatically, or a combination of both.

In my case, I only copy other traders (I assign a percentage of my investment portfolio to each trader that I copy, and trades are automatically copied proportionally). I monitor the performance weekly or monthly to decide which traders to start/stop copying.


SCENARIOS

My sister-in-law, mother, and I have trading accounts. All accounts are run as described above. I manage the account on behalf of my sister-in-law and mother.

1. Working full-time – me
2. Unemployed – my sister-in-law
3. Pensioner – my mother


QUESTIONS

What type of tax applied to each scenario (Capital Gains / Income / Other)?

Are losses recoverable from future profits? Are profits/losses accounted monthly or annually?

How does employment status (ie whether the activity is primary source of income or not) affect what type of tax it's classified under or any other aspects of tax?

Is there a tax implication on whether I maintain my sister-in-law's and mother's accounts or they maintain themselves?

The duration of automatically copied trades (ie from opening to closing) varies from few hours to months, depending on copied trader's strategy. some trades win and some lose. For tax purpose, do I look at profit/loss in the account equity or only in the money that I've withdrawn from the account?

What expenses are tax deductible? (eg tax advice, investment counsel/advice, interest on money borrowed to invest, if I attend training courses in future)

If in future I were to loan money to invest, can the loan interest be deducted from taxes? (eg Instead of adding £100 from salary each month, I'm thinking of adding £1200 via a loan an the monthly payments would then go towards paying the loan instead).

Can you recommend someone who can file tax returns? If yes, please quote me your best price.


Please let me know if you need clarification on any of the points or if you require further information.
Submitted: 1 year ago.
Category: Finance
Expert:  Rakhi Vasavada replied 1 year ago.
Dear Friend,

Hello and welcome. Thank you for providing us an opportunity to help you.

Have read your question in detail and let me try and throw some light on that. I shall remain concise and crisp so as to provide clear understanding to you and avoid any confusion.

To begin with, in any of the scenarios, i.e. you working full time, your sister in law not being employed at all or your mother being a pensioner, will have NO effect in how the income from forex trading would be treated.

The income will all scenario would be treated in the same manner. It would be chargeable to Income Tax.

Note that a person who regularly buys and sells large quantities of foreign currency with the sole purpose of realizing a gain. That person is trading. If what you do on the foreign exchange is a trade, then the profits will be taxable (and your losses will be deductible).

HMRC refers to 'trade' as running a business - not to be confused with trading/investing.

So, let me answer your questions one by one.

1. Your income would be chargeable to Income tax at your applicable rates.
2. The profits / losses would be accounted for for tax purposes annually.
3.No tax implications on you if you manage your sister in law's or your mother's account. They would be liable for tax for their profits.
4. Your employment status will not affect how your profits are taxed. They would be added to your total income and taxed irrespective of employment status.
5. Yes, the expenses you listed would be deductible.
6. Yes, that would be the cost of capital -- loan interest would be deductible.

The below are some tax preparers listed. However, you should best search them locally.

http://www.ukustax.com/

http://www.payecheck.co.uk/taxservices.html

http://www.stephenasher.com/services_taxreturn.cfm



I hope I am clear now and this would now help.

Let me know if you have more questions. In future, if you need to reach me directly, you may prefix your question with "For Rakhivasavada......" and you will reach me.

Warm Regards
Customer: replied 1 year ago.

Thank you Rakhi for your well written and prompt response.


 


Doing some research, I found that other traders on eToro, who reside in UK, are paying CGT.. not Income Tax. Please see discussion/comments on


https://openbook.etoro.com/posts/post/3513493f-9f8c-4a2f-b2aa-24842ee98fe4.


 


Any thoughts on this? Are you able to confirm with HMRC as to whether it should be CGT or IT please?

Expert:  Rakhi Vasavada replied 1 year ago.
Dear Niraj,

Hello and welcome. Thank you for your follow up question.

I am very clear on this. HMRC is directly silent on this issue. However, it has mentioned that all such income that result from trading -- i.e. activity done regularly and frequently with intent to profit -- shall be chargeable to income tax. This is DIFFERENTIATED from investing activity.

Capital gains always apply to investing and not trading activity. Trading activity are always subject income tax. Any income earned out of trading would get added to your regular income, irrespective of your employment status.

If you contact HMRC on this issue, (I have done this once) and their reply would be that they classify such forex trading / trades a spread bets. They say that any kind of forex trading, regardless of whether you have a full time 9-5 job, is regarded as trading depending on the frequency and knowledge of the subject. They said it cannot be regarded as gambling as per spread forex trades are and is therefore liable to tax and that too, income tax not capital gains tax because it is regarded as "trading".

Therefore, for sure, this would be chargeable to Income Tax and not capital gains.

I hope I am clear now and this would now help.

Let me know if you have more questions. In future, if you need to reach me directly, you may prefix your question with "For Rakhivasavada......" and you will reach me.

Warm Regards
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 3868
Experience: Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
Rakhi Vasavada and other Finance Specialists are ready to help you
Customer: replied 1 year ago.

Thanks for your excellent service, Rakhi. This discussion has clarified a lot of my understanding.


 

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