There are plenty of questions raised on whether you pay taxes on forex trading. This post will focus on that but more importantly paying forex taxes in the UK.
We cant advise on other countries as the tax rules might have changed and the rules could be very different compared to the UK
Should you pay tax on forex?
The simple answer is YES.
You have to pay taxes in the UK if you are making living out of trading the forex markets.
- Paying taxes on your Job while trading for a prop firm
- Paying taxes if you trade solely with a prop firm
We have two scenario’s here:
If you have a job and are trading for a prop firm like FTMO, the 5ivers, Myforexfunds etc. you have to register for self- assessment to pay any taxes and national insurance on the profits you make.
Your overall tax liability will be dependent on how much you earn on your normal job. In 2022/23 tax year, you pay 0% and get free allowance on the first £12,500. You then pay 20% tax on earnings from £12,501- £50,000, 40% on 50k to 150k and 45% on any earnings over 150k.
All of this information is available on the Government website, I have added the link below.
For this example lets just say you make £30k in your job and you got a payout of £70k with the Prop firm.
You still have 20k left charged at the 20% tax rate, so an estimate would look something like this.
20k of the prop firm earnings taxed at 20% basic rate.
20,000* 20%= 4,000
Then the remaining earnings would move into the next band and charged at a higher rate.
50k of the prop firm earnings would be charged at 40% higher rate.
50,000 * 40% – 20,000
So that would be £24k of total income taxes you would need to pay for that year.
4k on basic rate and 20k on the higher rate.
You then also need to national insurance (NI) on these earnings. I have left that calculation out as this post is focused on Income tax. But you can view this information on the government page below:
If you are using it as your only income, you still have to register as self-employed because you still need to register for self-assessment and pay your taxes at the end of each year.
The tax would workout something like below:
Income tax on £70k
0%- up to 12,500
20% – on 37,500 (Difference between 12.5k and 50k) =7,500
40%- on 20,000 (balance remaining above of 50k) = 8,000
This brings it to a total on £15,500.
Again you will need to pay National insurance on this income as well.
Other Tips and advice
This post was educate yourself about taxes and have an idea of what it would look like if you did the taxes yourself. This is of course a rough estimate excluding your other monthly expenses. However we do recommend that you speak with an accountant or hire one.
Yes, they do come for a price but you if your income combined or on its own is quite high it is better to be safe than sorry. You will save yourself from a large bill or a huge fine if you dont pay your taxes right. Also your accountant could help you advise how much money you will roughly need to keep away when it’s time to pay your taxes. This is because once you file for self-assessment you need to pay the taxes at the end of the year and it can usually be a large bill. If you dont have the money to pay then you could be in trouble.
We are not financial advisors and this is just advise on how you can prepare yourself better when you trading journey kicks off and when you come to paying off your taxes.