How to report F&O trading in your income tax return

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These and other questions are of concern to novice and experienced traders alike — and we want to help you answer them. Links to relevant official guidelines are also included.

This change is significant, as option trades and taxes may indicate a move from viewing binaries as gambling, into more mainstream financial income. For the current tax year, the advice below remains accurate. HMRC looks at all relevant circumstances to make decisions on tax liability. However, it is important to note that the correct treatment of any financial transaction or investment comes down to a question of fact:.

A transaction with a spread betting firm is a good example of this contextual approach; i. For most option trades and taxes, HMRC is likely to consider this activity as betting, which means any profits made from it will be outside the scope of both Income Tax and Capital Gains Tax. However, if that same transaction is carried out for commercial purposes; for instance, if it is made strategically as a hedge to offset the risks attached to direct investment in a securityany profits that arises from it might be regarded as part of a wider pattern of activity attracting tax liability.

For more information on this, see guidance note BIM The consequence of purely speculative, gambling or betting activity is option trades and taxes profitable transactions from it do not generally attract a tax charge. However, the potential downside of this from your point of view is that you cannot claim tax relief on losses from this type of activity.

An option, in the eyes of HMRC, is an agreed right to buy or sell an underlying asset at a specified price within a specified timeframe. It tends to have an inherent value in itself which carries CGT implications. See CG for the formal definition. Binary options present individuals with the opportunity to benefit from fluctuations up or down in, for instance, the price of individual shares or the performance of indices such as stock markets or currency markets.

These are derivative products; which means you do not have any ownership in the underlying asset at no point do you own the share in question, for instance. In fact, there are only two possible outcomes once the option expires: HMRC will almost always regard this as a form of gambling: Cases that option trades and taxes gone before the courts help to shed light on option trades and taxes.

A more recent case Hakki v Secretary of State for Work and Pensions [] Option trades and taxes Civ concerned a professional poker player who made a living through his winnings and who was facing a child maintenance payment order from the Child Support Agency. The Court of Appeal once again confirmed the general principle that gambling is not a trade.

So even if your only source of income is from binary options profits, it seems unlikely at present that profits would be deemed liable for tax. But do not rule it out completely. The answer, in the majority of cases, is likely to be no as it is not classed as income for tax purposes. But as ever with tax, it all depends on the context. Use this general guidance and consider your position carefully.

An accountant with specific expertise in gambling and financial trading activities should be able to assess your particular circumstances and provide an opinion on potential liabilities. Looking for a reliable, reputable platform to conduct your binary options trades? Check out our option trades and taxes reviews of the best sites.

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The acquisition date of the rights or options is the date you acquired the original shares or units. Disregard any capital gain or loss you make from exercising the rights or options to acquire those shares or units. If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain. Show download pdf controls. Work out the correct treatment of rights or options On this page: No-cost rights or options Rights or options you paid for No-cost rights or options The following steps apply to: Go to question 2 No: Go to question 3 2.

See answer 1 No: See answer 2 3. Did you exercise the rights or options? See answer 3 No: See answer 4 Answer 1 The shares or units you acquired when you exercised the rights or options are subject to capital gains tax CGT. The acquisition date of the shares or units is the date you exercised the rights or options to acquire the shares or units.

Answer 2 If you did not exercise the rights or options, you disregard any capital gain or loss on the sale or expiry of the rights or options. If you exercised the rights or options before that date, you disregard any capital gain or loss you make when you dispose of the shares or units that you acquired.

Answer 3 The shares or units you acquired when you exercised the rights or options are subject to CGT. The acquisition date of the shares or units is the date you exercised the rights or options.

Answer 4 If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain. If the capital proceeds are less than their reduced cost base, you make a capital loss. Rights or options you paid for The following steps apply to rights or options to acquire shares or units that you: Go to question 4 2. Go to question 3 No: See answer 1 3. Go to question 5 No: See answer 4 4. See answer 2 5. Go to question 6 No: See answer 5 6.

See answer 5 No: See answer 3 Answer 1 You disregard any capital gain or loss you make on the sale or expiry of the rights or options. Answer 2 If the capital proceeds on the sale or expiry of the rights or options are more than their cost base, you make a capital gain. Answer 5 The shares or units you acquired when you exercised the rights or options are subject to CGT.

Market valuation for tax purposes Acquiring rights or options Exercising rights or options Step-by-step decision process for determining the correct CGT treatment of rights and options. Go to question 3.