Do forex traders pay tax? – TaxScouts (2024)

TaxScouts -> Guides

3 min read
Last updated 19 Dec 2023

So, do forex (fx) traders pay tax? As you might imagine, the question isn’t as simple as it sounds. The majority of forex traders lose money, so it’s not in HMRC’s interest to allow everyone to offset their losses against their other income.

As a result, there are different rules for different trading instruments. And it all also depends on your profits.

There are four types of tax that are relevant to forex traders:

Income Tax – tax you pay on your overall earnings
Corporation Tax – tax you pay on your limited company earnings
Capital Gains Tax – tax that you pay on your profits from selling assets
Stamp Duty Reserve Tax – a tax or duty that you pay when you buy shares

This guide is for sole traders and those who are fx traders on the the side of full time employment.

Trading is a side gig

If forex trading is a side gig, you are covered by the Trading Allowance. It allows you to earn up to £1000 of extra income tax-free. Anything that you earn in profits over £1,000 will be taxed at the standard 2023/24 Income Tax rates.

Income Tax in the 2022/23 tax year

Income	Tax rate
Up to £12,570	0%	Personal allowance
£12,571 to £50,270	20%	Basic rate
£50,271 to £125,140	40%	Higher rate
over £125,141	45%	Additional rate

Trading is my main source of income

As a full time self-employed fx trader, you’ll be taxed on all of your profits over the tax-free Personal Allowance.

You’ll need to register as self-employed by declaring your income to HMRC by 5th October. After this, you will pay the tax you owe via a tax return.

Is Spread Betting tax free?

The type of instrument that you trade with affects the way that you’re taxed.

Spread Betting, for instance, is classed as gambling. As you don’t own the assets you’re betting on, you’ll not be liable to pay Capital Gains Tax or Stamp Duty on the money you make from it in the UK.

Contracts for Difference (CFDs) are a little different in tax terms. Whilst you don’t have to pay Stamp Duty on CFDs, you will be liable to pay Capital Gains Tax when you buy and sell them.

Take a look at our Capital Gains Tax calculator to see what you might owe.

Your situation

Tax and profit

How your capital gains tax is calculated

Your total capital gains tax (CGT) owed depends on two main components:

How much you earn in total
What type of assets you sell

Your overall earnings determine how much of your capital gains are taxed at 10% or 20%.
Our capital gains tax rates guide explains this in more detail.

In your case where capital gains from shares were £20,000 and your total annual earnings were £69,000:

Capital gains tax (CGT) breakdown

You pay no CGT on the first £12,300 that you make

You pay £127 at 10% tax rate for the next £1,270 of your capital gains

You pay £1,286 at 20% tax rate on the remaining £6,430 of your capital gains

Are there any more considerations?

Yes, there are a few things to consider when working out whether or not you might owe tax on your trading profits.

First of all, there are expenses. If you’re a full time fx trader and you’re not claiming the Trading Allowance, you’re allowed to deduct your expenses from your income when you work out your taxes. Allowable expenses are basically anything that you’ve spent wholly, exclusively and necessarily on your trading business.

Secondly, you should consider the size of your trading business. Questions like the below are important to ask yourself when questioning whether or not you owe tax:

How much do you earn overall?
How often and how much do you trade?
Do you pay tax on the rest of your income?
How much tax do you normally pay?

If you’re earning a lot from trading and you’re not yet paying tax on your profits, the chances are that HMRC will come knocking before too long.

Not sure if you owe CGT?

We can help. We offer one-off, personal tax advice from an accredited accountant. Speak toCGT accounting expert and clear up any confusion about your trading liabilities. Just £119 per consultation with no strings attached. Learn more.

See more on:

capital gains tax
employment status
invest

FAQs

Do forex traders pay tax? – TaxScouts? ›

As a full time self-employed fx trader, you'll be taxed on all of your profits over the tax-free Personal Allowance.

Find Out More ›

How are forex traders taxed? ›

How Am I Taxed for Forex Trading? If you trade 1256 contracts, your trades are taxed at 60% long-term capital gains and 40% short-term capital gains. If you're trading 988 contracts, you treat losses and gains as ordinary (taxed at your income tax bracket level).

How much do day traders get taxed? ›

Are day traders taxed differently?

Gross Annual Income	Long-Term Tax Rate	Short-term/Regular Tax Rate
$9,326 to $37,950	0%	15%
$37,951 to $91,900	15%	25%
$91,901 to $191,650	15%	28%
$191,651 to $416,700	15%	33%

3 more rows

Oct 21, 2023

How do you avoid tax on trading? ›

Possibly the best way to avoid paying tax is to invest your shares in a tax-free “wrapper” like an ISA or a pension. These financial products allow your money to grow free from the grasp of the taxman, so you can buy and sell shares without even worrying about the tax-free thresholds.

Is forex trading considered a job? ›

A career as a forex trader can be lucrative, flexible, and highly engaging. There is a steep learning curve and forex traders face high risks, leverage, and volatility.

Show Me More ›

Do forex traders pay tax in USA? ›

United States

The Internal Revenue Service (IRS) treats forex trading as capital gains or losses. Profits from trading are considered taxable income and must be reported on your tax return. Depending on your income and trading gains, you may fall into different tax brackets, resulting in varying tax rates.

Are gains on forex taxable? ›

Foreign exchange gains and losses are taxable and deductible respectively if the gains and losses are: arising from revenue transactions; realised; arising from a trade.

Find Out More ›

Do day traders pay taxes on every trade? ›

How day trading impacts your taxes. A profitable trader must pay taxes on their earnings, further reducing any potential profit. Additionally, day trading doesn't qualify for favorable tax treatment compared with long-term buy-and-hold investing.

Show Me More ›

Do full time day traders pay taxes? ›

More and more people are getting involved with day trading. Win or lose, you'll need to report your activities on your taxes, and pay taxes on the money you make. The good news is, you're generally taxed less than your regular income, and as a day trader, you could have added tax benefits.

Get More Info ›

How are full time traders taxed? ›

Income from trading is subject to capital gains taxes. Even if you're not a day trader, you'll have to think about capital gains taxes if you make any money by buying and selling investments. There are two types of capital gains taxes, long-term and short-term.

Tell Me More ›

How do I pay zero capital gains tax? ›

Capital gains tax rates

A capital gains rate of 0% applies if your taxable income is less than or equal to: $44,625 for single and married filing separately; $89,250 for married filing jointly and qualifying surviving spouse; and. $59,750 for head of household.

Learn More Now ›

Do you have to pay taxes if you lose money trading? ›

Similarly, if the value of your stocks goes down and you haven't sold them, this is known as "unrealized losses." Selling a stock for profit locks in "realized gains," which will be taxed. However, you won't be taxed anything if you sell stock at a loss.

Learn More Now ›

Is trading tax free? ›

You can be a full-time or part-time trader and still be exempt from paying tax. Typically, there are two types of traders who do not need to pay taxes: Day traders – These are traders who hold positions for less than one week. Day trading is not taxable because it qualifies as short-term trading on a small scale.

Get More Info ›

Does forex count as income? ›

Capital Gains Tax: In many countries, profits from forex trading are considered capital gains and may be subject to capital gains tax. The tax rate can vary depending on the country, your total income, and how long you held the position. Some countries have tax-free allowances for small gains.

Find Out More ›

What income is forex trading? ›

As of Apr 14, 2024, the average annual pay for a Forex Trader in the United States is $101,533 a year. Just in case you need a simple salary calculator, that works out to be approximately $48.81 an hour.

Find Out More ›

What is the average salary of a forex trader? ›

Forex Trading Salary

	Annual Salary	Monthly Pay
Top Earners	$101,500	$8,458
75th Percentile	$96,000	$8,000
Average	$76,005	$6,333
25th Percentile	$46,500	$3,875

Know More ›

Can you write off forex losses on taxes? ›

Forex trading losses are also treated as ordinary losses under Section 988. This means that forex traders are allowed to deduct their losses from their taxable income. For example, if a forex trader loses $10,000 in a tax year, they can deduct that amount from their taxable income.

Discover More ›

How much can forex traders make a day? ›

On average, a forex trader can make anywhere between $500 to $2,000 per day. However, this figure can vary significantly depending on market conditions, trading strategy, and risk management techniques. Some traders may make more than $2,000 in a single day, while others may make less or even incur losses.

Get More Info ›

Do you pay capital gains on currency exchange? ›

Currency Trading Markets

Ordinary exchange contracts are taxed at the ordinary capital gains rate. The rate is based on the length of time the currency was held. If you hold the currency for one year or more before selling it, the gain will be taxed at the long-term rate.

Explore More ›

What is the tax on foreign exchange? ›

Updates on foreign remittance tax India

In the 2023 Budget address, Finance Minister Nirmala Sitharaman announced that the Tax Collection at Source (TCS) for foreign remittances would increase from 5% to 20% of the transaction amount.

Know More ›