As someone interested in making money through stock trading, you may be wondering if the fees associated with this activity are tax-deductible. The answer is not as simple as a straightforward yes or no, and many different factors can come into play regarding taxes and stock trading.
There’s no such thing as a ‘stock trading tax’ in England. Instead, any profits or losses that you make from stock trading will be subject to the capital gains tax regime.
If you make a profit on your trades, you will be required to pay tax on those profits at your marginal rate. However, if you make a loss on your trades, you may be able to offset those losses against other capital gains that you have made in the same tax year.
Another vital factor to consider is how often you trade stocks. If you only trade occasionally, then it’s likely that any profits or losses will be considered Capital Gains. However, if you trade frequently, and especially if you trade at a professional capacity, your profits or losses will likely be considered a form of income, which means they will be subject to Income Tax.
There is a tax-free allowance for capital gains. You can make up to £11,700 in profits from stock trading (or any other form of capital investment) before you start paying tax. This allowance is per person, so if you’re married or in a civil partnership, you and your partner could make £11,700 in profits per person without paying any tax.
Consider whether or not any of the expenses associated with your stock trading are tax-deductible. For example, if you pay for professional advice or use a stockbroker, then you may be able to deduct the cost of these services from your taxable profits.
If you trade stocks through an offshore account, then the rules regarding taxation can become very complex. It’s therefore essential to seek professional advice if you have an offshore account.
Capital gains tax rates
The amount of tax you will pay on your capital gains will depend on your marginal rate of Income Tax. For example, if you’re a basic rate taxpayer, you will pay 18% tax on your profits. If you’re a higher rate taxpayer, you will pay 28% tax on your profits.
As well as being able to offset your losses against your other capital gains, you may also be able to carry forward those losses to offset against future capital gains. It means that if you make a loss in one year, you may be able to use that loss to reduce the amount of tax that you pay in future years.
If you invest in a tax-efficient fund, you may be able to reduce the amount of tax that you pay on your profits. For example, Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EISs) are designed to be tax-efficient investments.
If you invest in an ISA (Individual Savings Account), you will not have to pay any capital gains tax on your profits. It’s important to remember that there is a limit on how much you can invest in an ISA each year, which is £20,000 in England.
If you are unsure, seek professional advice
If you are unsure about your situation or could not find what your unique situation reflects in the examples above, it’s always worth seeking professional advice before making any decisions about your taxes. The rules regarding taxation can be very complex, and it’s easy to make mistakes. A qualified accountant or tax adviser will be able to help you ensure that you’re paying the right amount of tax on your stock trading profits.
If you are interested in potentially making passive income as a way to supplement your regular income, you can buy shares online with a reputable and UK-licensed broker.