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Spread Betting & CFDs

Spread betting and contracts for difference (CFDs) are leveraged derivative products that allow you to speculate on the price movements of financial markets without owning the underlying asset. While they are similar in many respects, their UK tax treatment is fundamentally different. Spread betting is classified as gambling for tax purposes and is therefore free from Capital Gains Tax and Income Tax. CFD trading is subject to CGT (and potentially Income Tax depending on your trading status). Understanding this distinction is crucial for choosing the right product for your trading strategy. The tax year runs from 6 April to 5 April.

Tax-Free Spread Betting

Financial spread betting is treated as gambling under UK law, which means that profits are entirely free from Capital Gains Tax and Income Tax. You do not need to report spread betting profits on your Self Assessment tax return (though you should still keep records to demonstrate they are from spread betting if HMRC enquires). Spread betting is offered by providers such as IG, City Index, and Spreadex. The tax-free treatment applies regardless of how much you trade or how often, and there is no annual limit. This makes spread betting significantly more tax-efficient than CFD trading for profitable traders. However, losses cannot be offset against other income or gains for tax purposes either. Spread betting is also free from Stamp Duty Reserve Tax.

CFD Taxation

CFDs (contracts for difference) are not classified as gambling — they are financial instruments. Profits from CFD trading are subject to Capital Gains Tax (or Income Tax if HMRC treats you as a trader). For occasional CFD traders, gains above the annual CGT exempt amount (£3,000 for 2025/26) are taxed at 10% for basic-rate taxpayers and 20% for higher-rate taxpayers. The same share identification rules (Section 104 pool, 30-day bed and breakfasting) do not directly apply to CFDs because you do not own the underlying asset — you have a contract based on its price. Instead, each CFD trade is a separate chargeable asset for CGT purposes, with the gain or loss being the difference between the opening and closing price, adjusted for financing costs and commissions. Spread betting losses cannot be used to offset CFD gains, and vice versa.

Financial Spread Bet vs CFD Differences

Beyond tax treatment, there are practical differences between spread betting and CFDs. Spread betting uses a "per point" stake (e.g. £10 per point movement in the FTSE 100), while CFDs involve a contract size (e.g. 1,000 shares). Spread betting is available on indices, currencies, commodities, and individual shares, but the range of markets may be narrower than CFDs in some cases. Spread betting has no expiry date for rolling daily products (you pay a daily funding charge to keep the position open), while CFDs have explicit expiry dates for futures-based products or continuous contracts with daily funding. Spread betting profits are tax-free; CFD profits are subject to CGT. Spread betting cannot be held in an ISA; some CFD providers offer ISA-wrapped CFD trading (though this is unusual and comes with restrictions).

HMRC Guidance

HMRC has published detailed guidance on the tax treatment of spread betting and CFDs. The key distinction is that spread betting qualifies as "gambling" within the meaning of the Gambling Act 2005, and HMRC has consistently confirmed that profits are not taxable. This was confirmed in the case of *Higgins v HMRC* (2021), where the First-tier Tribunal held that a spread bet is a contract of difference that is a "bet" for tax purposes. For CFDs, HMRC's guidance makes clear that they are derivative contracts chargeable to CGT (for investors) or Income Tax (for traders). If HMRC considers you to be carrying on a trade in CFDs (high frequency trading, organised approach, profit motive), your profits may be treated as trading income subject to Income Tax and Class 4 National Insurance. There is no de minimis threshold — HMRC assesses each case on its facts.

Professional Traders

If you trade spread bets or CFDs as a professional (either as your main occupation or as a significant secondary activity), HMRC may treat your trading as a trade. For professional traders, profits are subject to Income Tax (not CGT) and Class 4 National Insurance. The trading activity must be regular, organised, and carried on with a view to profit. Factors HMRC considers: frequency of trades, level of organisation (trade plans, record-keeping), the time devoted, whether you rely on the income, and whether you trade using borrowed capital. Professional traders can claim trading expenses (platform fees, data subscriptions, training courses) and use losses against other income. Most spread betting firms ask you to self-certify whether you are a professional or retail client under FCA rules — but this is a regulatory classification, not a tax classification.

Risk Warning

Spread betting and CFDs are high-risk leveraged products. You can lose more than your initial deposit because losses are based on the full notional value of the position, not just the margin you deposited. The FCA reports that 60–75% of retail clients lose money when trading CFDs. Spread betting carries similar risks. Leverage magnifies both gains and losses, and rapid market movements can trigger margin calls requiring additional funds. Unlike investing in shares or funds, derivative trading requires active management and is generally not suitable for long-term buy-and-hold strategies. Always use stop-loss orders, trade only with money you can afford to lose, and consider whether the tax advantages of spread betting justify the additional complexity and risk compared to direct investment in shares or ETFs.