By and large, if you make a profit on a transaction then you would – unless you can make a case for it being tax-free – normally quite like it to be treated as capital gain. Under current laws, at least; whether a future government may yield to the temptation to equalise rates of capital gains tax and income tax remains to be seen.
On the other hand, if you are unfortunate enough to suffer a loss on a transaction, being able to treat it as a trading loss is likely to be attractive, especially if you have other forms of income against which the loss may be relieved.
The courts have said in the past that there is a prima facie presumption that an individual engaged in speculative dealings in securities is not carrying on a trade (the position may be different for companies). The challenge for any taxpayer in Mr Henderson’s position is in getting over the hurdle of showing that the circumstances are sufficiently unusual to displace that presumption. To stand much chance of doing so, it’s likely that the putative trader will need to show:
Mr Henderson, by contrast, had made only 81 purchases and 85 sales over the two years and spent only an hour or two a day on his activities. He had at different times given various figures as his target profit, ranging from around £4,000 to £6,000 a month. Whatever the figure, the FTT observed that his evidence ‘indicated that this was the amount he thought he needed and hoped to achieve; it was not an amount that was calculated as achievable from any particular plan’. Further, the maximum funds committed did not exceed £100,000; and as the FTT said, ‘a return of £6,000 per month on funds employed of £100,000 seems ambitious and there was no indication that any serious thought had been applied to how this would be achieved.’
All in all, Mr Henderson’s case was a hopeless one and was duly rejected.
By and large, if you make a profit on a transaction then you would – unless you can make a case for it being tax-free – normally quite like it to be treated as capital gain. Under current laws, at least; whether a future government may yield to the temptation to equalise rates of capital gains tax and income tax remains to be seen.
On the other hand, if you are unfortunate enough to suffer a loss on a transaction, being able to treat it as a trading loss is likely to be attractive, especially if you have other forms of income against which the loss may be relieved.
The courts have said in the past that there is a prima facie presumption that an individual engaged in speculative dealings in securities is not carrying on a trade (the position may be different for companies). The challenge for any taxpayer in Mr Henderson’s position is in getting over the hurdle of showing that the circumstances are sufficiently unusual to displace that presumption. To stand much chance of doing so, it’s likely that the putative trader will need to show:
Mr Henderson, by contrast, had made only 81 purchases and 85 sales over the two years and spent only an hour or two a day on his activities. He had at different times given various figures as his target profit, ranging from around £4,000 to £6,000 a month. Whatever the figure, the FTT observed that his evidence ‘indicated that this was the amount he thought he needed and hoped to achieve; it was not an amount that was calculated as achievable from any particular plan’. Further, the maximum funds committed did not exceed £100,000; and as the FTT said, ‘a return of £6,000 per month on funds employed of £100,000 seems ambitious and there was no indication that any serious thought had been applied to how this would be achieved.’
All in all, Mr Henderson’s case was a hopeless one and was duly rejected.