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Hi, I am ok to wait.
I will be using Interactive Brokers for the more active dealing.
I anticipate capital gains of £20,000 per year, largely from premiums from the sale of options with some gains on the buying and selling of shares and from foreign currency transactions. I am estimating dividend income of £5,000 per year.
I have no other sources of income other than those mentioned. I will be entitled to draw about £20,000 per year from a defined benefit plan in five years time although I could defer taking the pension.
Hi again.My own experience of this from talking to people I've worked with in tax is that HMRC has some way to go in formulating its policy before a definitive answer can be given as to the tax status of someone like yourself and at the moment at least, you can pretty much choose how to be taxed simply by choosing which pages in your tax return to disclose the gains/profits you make either as capital gains/losses or trading profits/losses. Take a look here for the leading tax case on this subject which dates back to 1965. Clearly, the internet has changed the landscape around investment and share dealing since 1965 but, as I said earlier, the law has some way to go in catching up.Capital gains are taxed at 18%, 28% or a combination of the two rates depending on the level of your income in the same tax year. Income Tax is charged at 20%, 40% and 45%. Class 4 NIC is charged at 9% on annual profits between £7,755 and £41,450 and at 2% on the excess.1 The only cases I know of from friends and former colleagues where profits made by daytraders for want of a better word are taxed as income as opposed to as capital gains are where the individual has registered as self-employed because the daytrading is their main source of income and they fear an HMRC enquiry, the result of which is a backdating of their tax status with the resulting tax bill.The tax office doesn't appear to query an individual registered as a self-employed daytrader because they may secure a higher tax yield notwithstanding the fact that the daytrader will be able to claim other expenses over and above dealings costs and pay pension contributions on their "earnings". One wonders what the tax office attitude would be if a daytrader made losses and claimed tax relief against other sources of income on a regular basis. The prospect of many daytraders claiming losses is the reason I believe that HMRC is reluctant to challenge the declaration of gains from daytrading as capital gains. Where they are disclosed as gains/losses, the losses can generally only be used against capital gains. 2 I would say the possibility of that happening is unlikely. The analogy I would draw to your situation is that of a property developer. If such an individual builds a house and sells it shortly after, they will be taxed as a sole trader on the profit and pay income tax and national insurance contributions. If the same builder builds a house and lets it for a year or two before selling it, any profit will be taxed as a gain and subjected to CGT. The property developer can be both a sole trader and an investor. 3 If you traded through a limited company, profits up to £300,000 would be taxed at 20%. If you drew money out as dividends, given your current income level, you would likely have to pay higher rate tax on them at 22.5% (32.5% - 10% tax credit). You would, however, be able to offset some expenses against the company income over and above your dealing costs. If your income from all sources kept you within the basic rate tax band, there would be no further tax to pay on dividends.You may have discovered the website here already. I know a few traders who use it but they all tell me there is no definitive answer in the members' area as to the tax status of UK daytraders. All of those I know personally disclose their profits/losses as capital gains/losses because of the lower tax rates and the fact that their overhead expenses are not significant. I hope this helps but let me know if you have any further questions.