Spread Betting Tax
Spread betting is different from other forms of bets where the payout is based on the accuracy of the bet placed rather than a win or lose situation.
This form of betting is a major growth industry in the UK but carries much larger gains or losses due to higher levels of risk exposed. The wager gambles an amount "per point" that something goes up or down based on a predetermined level. Spread betting has become popular with share trading.
Shares - Buying versus Betting
Although the principles are similar with betting you don't actually need to purchase the shares involved and put all that cash at risk or tie up the investment. You still purchase at the bid/ offer price but you bet an amount per penny that the stock moved. Normally bets are in £10 amounts and you state if you believe the stock is going to move up or down.
You will need to stop the trade as necessary or implement a traditional stop/ loss which will automatically close the bet.
For example; if you bet a stock at 100p is going to move up and you bet £10 per point and it goes up 20 points you win £200 - of course if it goes down by the same amount you lose £200. If you were to purchase shares with the equivalent trading values you would need to invest £2000 so it's a different way to play the stock market.
With traditional betting you only lose your stake money but with spread betting your gains or losses will continue to accumulate until to stop the bet. As this is a financial product all companies offering spread betting facilities are regulated by the Financial Services Authority and there are only a handful of companies that offer this type of bet.
Capital Gains Tax
Currently in the UK there is no capital gains tax to be paid on spread bets or any types of bets as they are completely exempt (of course tax law may change). The Inland Revenue doesn't allow people to offset losses against profits either so for the time being profits or income from spread betting are not taxable.
As in horse racing there is duty to be paid - either on the bet or the profit - normally the spread betting company will pay this on your behalf but it's worth checking with your broker or indexation company.
Normally when you purchase shares you need to pay stamp duty tax but as you are just betting on rises and falls of the shares and you do not actually own the shares then there is no share stamp duty to pay either (currently 0.5% if you buy shares).