What are the CFD trading tax implications? – TaxScouts (2024)

With the popularity of Contracts for Difference (CFD) on the rise in the UK, it’s important to know about the CFD trading tax implications that come with them. When traded correctly, they can be a great way to create a diverse investment portfolio.

However, like any trading instrument, it’s important to know about the risks and rules surrounding taxation before you start investing. We’ve put together an easy guide to explain all you need to know about the CFD trading tax implications below.

What is a CFD?

Before we dive into the CFD trading tax implications, let’s start by explaining what a CFD actually is.

A CFD is a type of financial contract that pays the difference in the settlement price between the open and closing trades. HMRC define it as:

‘A contract whose purpose is to get a profit or avoid a loss by reference to fluctuations in:

• The value or price of the property to which the contract refers
• An index or other factors designated in the contract.’

The outcome of a CFD investment completely depends on the evolution of the price of an underlying asset. For example, if the price of the underlying asset rises, you’ll make a profit. If it decreases, you’ll lose money.

Some of the most popular underlying assets to trade with CFDs include:

• Stocks
• Raw materials
• Currencies
• Cryptocurrencies and digital assets

CFDs have the potential to generate profits and help investors build a strong trading portfolio. If you’re thinking of starting CFD trading, then there are a few tax implications that you should know about first.

CFD trading tax implications

Are CFD profits taxable?

If you trade CFDs, you might be wondering if you have to pay tax on any profit you make. One type of tax you might have to pay is Capital Gains Tax (CGT).

As an individual, if you’ve made a capital gain on a CFD above the CGT allowance, then you need to file a Self Assessment tax return to declare this profit and pay tax on it.

However, if it’s your limited company that has made a profit on a CFD, and not you individually, then you will have to pay Corporation Tax. You’ll pay tax on any profits your company makes from selling these types of assets.

How much tax will I pay?

You’ll only have to pay Capital Gains Tax (CGT) on your overall gains above your tax-free allowance. Your gain is the difference between what you paid for your asset and what you sold it for.

In the 2024/25 tax year, this CGT allowance is £3,000. Previously, the 2023/24 tax year allowance was £6,000.

If you want to know the exact amount of CGT you’ll pay on your CFD, use our Capital Gains Tax calculator below!

Does this have anything to do with the government’s CFD scheme?

Nope. The government’s Contracts for Difference scheme has the same name as CFD trading, however it’s actually how the government supports low-carbon electricity generation. The CfD scheme incentivises investment into renewable energy. They also promise a pre-agreed, fixed price (much like we do 😏) for the duration of the contract. Although it’s very important work, it’s not exactly what we’re talking about here.