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Where Taxpayers and Advisers Meet

Contracts for Difference (CFDs)

mpat89
Posts: 4
Joined: Tue Sep 15, 2015 9:15 pm

Contracts for Difference (CFDs)

Postby mpat89 » Tue Sep 15, 2015 9:24 pm

Hi,

I am about to commence entering into Contracts for Differences.

I will enter into at least 60 different contracts for difference during a tax year, with part or full closure (disposal) of all of these contracts during the year.

I am seeking an answer on how the taxable gain/loss would be calculated for CGT purposes.

I have visited HMRC and found http://www.hmrc.gov.uk/manuals/cgmanual/CG56101.htm however the example only explains dealing in one contract for difference at a time.

As I will be dealing in many contracts for difference, my interest charges will be charged on my account and not split out by each contract. Therefore I have no way of allocating these charges to each contract, making the HMRC example quite unclear/basic. Is anyone able to answer how this would work, or point me to a more detailed source? Could I just deduct the annual interest charge from whatever chargeable gain or loss I have, given I cannot allocate them to individual disposals?

Thanks!

pawncob
Posts: 4557
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Contracts for Difference (CFDs)

Postby pawncob » Tue Sep 22, 2015 10:30 am

I suggest you charge the interest element , along with the commission, against the net profit for the transaction during the trading period.
With a pinch of salt take what I say, but don't exceed your RDA

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: Contracts for Difference (CFDs)

Postby King_Maker » Tue Sep 22, 2015 12:46 pm

Interest is not usually a deduction for CGT purposes.

If the financing charge is significant, a company might be a better option.

pawncob
Posts: 4557
Joined: Wed Aug 06, 2008 4:06 pm
Location: West Sussex

Re: Contracts for Difference (CFDs)

Postby pawncob » Tue Sep 22, 2015 3:18 pm

@KingMaker

It's not really interest. HMRC say:
Payments equivalent to interest that the investor makes or receives are not true interest. Similarly, no true dividends change hands. The amounts are instead entered into the capital gains computation. The investor should not show amounts received as investment income (interest or company dividends) on his or her return. And "interest" or "dividends" paid cannot be netted off against income.
With a pinch of salt take what I say, but don't exceed your RDA

mpat89
Posts: 4
Joined: Tue Sep 15, 2015 9:15 pm

Re: Contracts for Difference (CFDs)

Postby mpat89 » Tue Sep 22, 2015 10:08 pm

Great. Turns out I can allocate interest to each individual contract with my broker so I have all the data I need.

So my net gain/loss will be net of financing costs and dividends paid/received.

That's not bad, considering interest isn't deductible on standard share dealing.

King_Maker
Posts: 6538
Joined: Wed Aug 06, 2008 3:22 pm

Re: Contracts for Difference (CFDs)

Postby King_Maker » Wed Sep 23, 2015 9:03 am

@Pawncob

Deemed interest is a separate issue - and forms part of the CGT calculation.

mpat89
Posts: 4
Joined: Tue Sep 15, 2015 9:15 pm

Re: Contracts for Difference (CFDs)

Postby mpat89 » Fri Feb 19, 2016 10:09 pm

So how would this work on the tax return.

I enter into a contract so my allowable cost is £nil on the tax return.

I close out the contract for a profit of 1,000 USD.

I had earlier converted the 1,000 USD (whilst still an unrealised gain) to 600 GBP effectively locking in the conversion rate.

So my proceeds are £600.

This gives me a profit of £600 which I adjust to include dividend received of £60 and finance charges of £20, giving me a net profit of £640 chargeable to CGT.

Does this sound right?

Strangely this seems a bit of a specialist topic. I am going in and out of 60 different contracts a few times a year, the reporting burden seems huge. What's the best way to tackle this? I have access to practice software such as Iris which I use to prepare & submit my return.


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