Binary Options Tax In The UK

taxesBinary options trading might be quite commonplace at the moment but it is still considered somewhat of a new arrival. Furthermore, the actual conditions surrounding this form of trading muddies this murky water a little more.

Binary Options UK Tax

While binary options trading is relatively simple to understand and manage, this is not necessarily the case for financial authorities. In the United Kingdom, in particular there is a great deal of discussion surrounding binary options trading and the associated taxes.

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While it might be considered a full-time job for some individuals, the actual concept involved with binary options trading has the UK government labeling it in other ways. Let’s take a look at binary options trading and how it is taxed:

Is Binary Option Trading Considered an Occupation?

There are several different taxes levied upon individuals by the government. However, you need to be able to fit into a certain category in order for that particular charge to apply to you. As a trader, you would believe that an income tax would be what you are required to pay. This, however, is not necessarily true.

For those in the financial sector, being a binary options traders is a legitimate position. Some individuals do it as a form of investment or to add to an income that they are receiving from another form of employment. There are others, nonetheless, who consider binary options trading to be their full-time profession. These individuals are permanent traders. The UK government, however, will fail to see you as such if you are only taking part in binary options trading.

This is because the practices you are involved are completely speculative, according to their regulations. As such, you, as a binary options trader, do not fall under the purview of what the UK government presumes a financial trader to be. Therefore, in the simplest terms, binary options trading is not considered to be an actual occupation.

How is Binary Options Trading Viewed in the UK?

As a binary options trader, it is obvious to you that there is a considerable amount of effort and calculation involved with this type of trading. You have to create different strategies for different conditions and then apply them when it is the most opportune moment. The UK government, however, holds a more simplistic view of this form of trading. Essentially, they consider it to be gambling, and thus associate it with games that one might engage in at a casino.

There are two main reasons why the UK government does not see binary options trading as an occupation. The first is to do with the word ‘options’. According to the financial agencies in the UK, an option is the right to either buy or sell an asset at a particular price. This must be done within a certain amount of time. Due to this definition, binary options are not actually considered options.

The other reason that the UK considers this type of trading to be gambling is due to the all or nothing concept attached to it. Basically, if your prediction is right, you get all the money, if you are wrong, you lose everything. This is the same principle with gambling. While certain aspects of binary options trading have offset this all or nothing condition, the overall view of it has not really changed. Since binary options trading is considered to be both speculative as well as where you can either win or lose all the money, it is considered gambling.

How is Binary Options Taxed in the UK?

Typically, if you were engaged in any type of occupation in the UK, you would fall under the purview of the income tax. Now, as has been discussed earlier, binary options trading is not considered a form of employment. This is true even if you have devoted all of your time and efforts to binary options trading. Even if it is your only source of income, it is still considered to be a form of gambling. Therefore, you cannot be levied under the income tax law.

Now, some individuals may consider this to be an advantage. This means that according to the law, they do not have to pay any money to the government. Of course, at the same time, this means that traders are not liable for compensation if they lose a considerable sum of money while trading.

There is also another issue. According to the guidelines laid down by the UK government, binary options profits cannot be taxed under income tax. Nonetheless, this does not necessarily cover all aspects of the trading that you are involved in. In fact, on a case to case basis, depending on the conditions surrounding the trade, you may have to pay some form of tax.

The bottom line here is that the UK tax law regarding binary options trading is not necessarily as cut and dry as it may seem. This is why it is important to discuss these matters with an accountant if you are a full-time binary options trader. You will need to know whether or not your profits should be included in your tax return.

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Page Updated: 28 October, 2016