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bigduckontax
bigduckontax, Accountant
Category: UK Tax
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Experience:  FCCA FCMA CGMA ACIS
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Some Questions: a) how are dividends received on CFD's

Customer Question

Hi Tony
- Some Questions:
a) how are dividends received on CFD's long positions taxed.
b) conversely how are dividends paid on CFD's short positions taxed.
c) Commissions paid and funding interest - is this an allowable cost in calculating the CGT on the CFD.
Thanks
Submitted: 8 months ago.
Category: UK Tax
Expert:  bigduckontax replied 8 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Here is the general position from Moneyterms.co.uk:

'Capital gains tax

Contracts for difference are subject to capital gains tax in the UK. Losses on CFDs may be used to offset gains made elsewhere.

Income tax

The profits (and losses) from CFDs, in the hands of individuals, are usually treated as capital gains and losses, however, it is possible for that sufficiently regular trading, especially if it is one's main source of income, may be considered carrying on a trade, and therefore the profits will be subject to income tax'

a & b) The first 5K of dividends in any one tax year are tax free. Above that level tax is applied depending on your tax band viz:

Basic rate taxpayer - 7.5%

Higher rate taxpayer- 32.5%

Additional rate taxpayer - 38.1%

c) Commissions paid and funding interest would be allowable against any gain made.

I do hope that you have found my reply of assistance.

Customer: replied 8 months ago.
in terms of dividends, if there were 2 open CFD positions(one long and one short) and received say £500 dividend on the long position and paid £200 on the short position, presumably only the net £300 is shown on the tax return? Is this correct?
Expert:  bigduckontax replied 8 months ago.

Correct. but if the annual net total were below 5K there would be no tax due anyway.