Spread bet your way to a tax-free remittance?
30th April 2024
Posted in Articles by Andrew Marr
The remittance basis of taxation can apply to non-UK domiciled individuals. This means that in certain tax years they could escape tax on offshore income and gains which have not been brought into the UK. Such income and gains would then only be taxable once they are remitted. Generally, there are all sorts of complicated rules which will ensure that such funds will fall within the UK tax net once they are brought into the UK. However, James Kessler KC made an interesting observation about how spread betting may allow certain individuals to effectively remit previously unremitted funds without triggering a tax charge. We mentioned this a few years ago in a Tax Bite, but are providing an update on how this could be used in practice.
How does spread betting work?
Spread betting allows a customer to take a view on the direction of a particular market. There will be a buy price and a sell price and then the customer decides his position and what his ‘bet’ per point is. For example, Scottie Scheffler is priced at 10-12 in the US Open golf finishing position market. If I think that he will do well then I could sell at 10 for £10 a point (say). If he were then to win I would make £90 (because I had sold at 10 and bought at 1 when the market closed). Somebody else who thought that the course didn’t suit him and so bought at 12 for £10 a point would lose £110.
What has this got to do with unremitted funds?
In any spread bet (to state the obvious) you would either win or lose. If you were to lose a spread bet with an overseas spread betting firm then you could settle this loss with unremitted funds. This would be an offshore gambling loss and there would be no question of this being a remittance. If you were to win the spread bet then this would be a profit which has arisen from the contingent liability that you undertook when making the bet and not from the unremitted income and gains. It follows that this profit could be remitted to the UK without tax implications. Also gambling profits and losses are not taxable on general principles.
Example
Trevor has £500,000 of unremitted funds which would be subject to tax under the remittance basis if brought into the UK. Over a period of time, he spread bets on financial markets with an Isle of Man spread betting company. He likes to bet on the price of the Dow Jones index at the end of each week. During a period of two years, he sustains loss making bets of £500,000 but he wins £480,000 on the successful bets (and he brings this £480,000 into the UK). Therefore, the end result is that Trevor no longer has any offshore funds but he has £480,000 in the UK on which he has not been taxed.
Forbes Dawson view
It is difficult to see how HMRC could attack this if an individual takes a genuine risk with a series of bets. However, aggressive strategies could be caught by the general anti-avoidance rule and other legislation. I am thinking here of potential cases where ‘equal and opposite bets’ are made on the same event/market and so that the wins and losses are cancelled out. There will be some non-domiciled individuals who will be able to take advantage of the Tories’ recent ‘amnesty’ whereby unremitted funds can be brought back to the UK for a one-off 12% tax charge for two years from 6 April 2025 (although things may have changed by then…).
