According to HMRC, CFD traders open margin trades, meaning they only deposit a fraction of the total contract value to gain full market exposure. This increases both the potential for higher profits and the risk of losses if the market moves against the trader’s position.
Maintaining a CFD contract attracts multiple costs depending on the provider. These may include minimum deposit requirements, daily financing charges for positions held overnight, and trading commissions. As one of the directional trading types subject to , profits from CFDs are taxed at 18% or up to 24%, depending on the investor’s income level. This tax applies once gains exceed the annual CGT allowance, which is currently £3,000 in the UK.
The advantage of CFD trading in relation to taxes is that it is exempt from stamp duty, since traders do not take ownership of the underlying asset. In addition, traders can offset allowable losses against gains before applying the annual allowance, helping to reduce overall taxable profits.
