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I am a Portfolio Manager based in London, investing in UK…

Hello,I am a Portfolio Manager...
Hello,I am a Portfolio Manager based in London, investing in UK and European Equities. I am employed by a Fund and pay PAYE. I am interested in trading with my own personal money on IG Index, which offer both Spread Betting (tax free in the UK) and CFD Trading (subject to CGT). My question is:- If I trade with IG Index, could HMRC argue that I am using my skills as a Portfolio Manager to trade my own money and therefore any Profits would be subject to income tax rather than no tax under Spread betting or CGT under CFD trading? i.e. HMRC might claim its a continuation of my current full-time job?Thanks.
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8/10/2017
Joshua
Joshua, Lawyer
Category: UK Law
Satisfied Customers: 26,070
Experience: LL.B (Hons), Higher Prof. Dip. Law & Practice
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Hello and thank you for your question. I will be very pleased to assist you. I'm a practising lawyer in England with over 10 years experience.

For the avoidance of any doubt, from what you say your proposed spread betting activity would be carried out entirely in your own time and with your own funds and would be kept entirely distinct in both respects from your "day job"?

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Customer reply replied 10 months ago
Hi Joshua,Thanks for your reply. The proposed spread betting would be carried entirely with my own funds yes. In terms of carrying it own in my own time, that is more difficult as by definition the stockmarket is open from 8am to 4:30pm in the UK, so I could only trade with my own funds at the same time as I am doing my proper job. However, my personal trading might take up say 5 minutes a day maximum (simply placing the odd trade here and there), whereas my proper day job would be for many hours. In addition, due to compliance restrictions, I would only be trading securities with my own funds that are exempt from 'Pre-approval' by my employer (e.g. Currency, Commodities and Equity Indices), so there would be no conflict of interest.I hope that explains it.Thanks.

Many thanks. The question of betting where the person doing the betting has some degree of professional skill or trade experience as been tested by tax tribunals a number of times and there appears to be an established pattern in the decisions reached. There is no case I can find specifically relating to spread betting but this is not entirely suprising as it is a comparatively newer form of betting to that of the established horse betting and so on which has been the subject matter of much of the case law.

HMRC’s Business Income Manual at BIM22015 provides as follows: ‘the basic position is that betting and gambling, as such, do not constitute trading including spread betting, but an organised activity to make profits out of the gambling public will normally amount to trading’. BIM22018 also adds that as part of their trade a bookmaker may themselves place bets.

A critical factor it would seem is whether you are taking as opposed to laying a bet. Partridge v Mallandaine [1886] 2 TC 179 decided that a professional bookmaker was carrying on a vocation as an organised activity.

In Cooper v Stubbs [1925] 2 KB 753, a cotton dealer dealt in his own time in cotton futures outside of his main trade as a partner in a cotton dealership, and he was held to be trading in those futures. In Burdge v Pyne [1969] 45 TC 320, the Commissioners held that card winnings by the owner of a club at the club, were trading earnings in his capacity as representative of the club, and not personal winnings.

Generally there appears to be little support for holding that betting even where the use of skill from ones main profession is used to assist in its activity amounts to trading. The reasons for this is likely to be practical as much as anything else. If betting was commonly treated as a trade, then HMRC could quite possibly end up repaying more tax as relief against loss than they would be recover in taxing trading profits. HMRC Business Income Manual at BIM22015 refers to the Australian case, Evans v FCT [1989] stating that “there has been no decision of a court in Australia nor, so far as I am aware, in the UK where it has been held that a mere punter was carrying on a business”’. HMRC’s guidance also states that ‘placing a spread bet is not normally carrying on a trade’.

HMRC BIM22019 also refers to the cases of Down v Compston [1937] 21 TC 60 and Burdge v Pyne [1968] 45 TC 320 which provide that, to be taxable, betting wins must come from the carrying on of the trade not merely from an opportunity presented by a trade’.

To sum up generally it seems your proposal is relatively safe from being considered a trade. My one concern would be your carrying on the activity at your place of business. This potentially could be a weakness that could be exploited. Of course HMRC would only show any interest if you are successful otherwise there is nothing to tax but I assume you have some degree of skill in what you propose to do so success is presumably reasonably to be expected. I appreciate there is little you can do to address this but one thing that you could consider is using your own device exclusively and never your business computers to carry out the trades. At least this provides for a degree of separation even if it is not physical location separation in respect of your activities.

Does the above answer all your questions? If it does, I should be very grateful if you would kindly take a moment to click a rating for my service to you today. Your feedback is important to me. If there is anything else I can help with please reply back to me though

Joshua
Joshua, Lawyer
Category: UK Law
Satisfied Customers: 26,070
Experience: LL.B (Hons), Higher Prof. Dip. Law & Practice
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Customer reply replied 10 months ago
Joshua,Thank you for your reply, I think that is a very considered response, especially with regards ***** ***** using business computers, as modern day technology now provides spread betting apps on mobile devices.Thank you for your prompt response.

A pleasure. I wish you every success.

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