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PRESS ROOM

Boost Welcomes UK Treasury Review of the Spread Betting Tax Loophole whilst Spread Betting Market Shrinks by 8% in Stark Contrast to a 15% Global Growth of the Short and Leverage ETP Market

Thursday 20th February '14

  • BOOST welcomes Treasury review of spread betting tax loophole
  • BOOST believes spread betting should be subject to tax on gains and off settable for losses which is the case for similar investment products
  • BOOST believes such a move will position short and leverage Exchange Traded Products (ETPs)favourably when compared to spread betting and Contracts For Differences (CFDs)
  • Spread betting market shrinks by 8% in 2013 compared to 52% increase in trading volumes of short and leveraged ETPs

BOOST ETP, Europe’s award winning, specialist Short and Leverage (S&L) Exchange-Traded Product (ETP) provider, welcomed the recent announcement from Treasury Spokesman, Lord Newby, who commented that ministers “ought to look” at the apparent “loophole” that allows spread betters to avoid income and capital gains tax.

Other forms of leverage trading by investors, including S&L ETPs, are subject to capital gains tax on gains and losses, whereas spread betting is not subject to capital gains tax. The same is true for losses which cannot be netted off against an investor’s gains. This means, on average, if an investor is winning on their trades they will pay no capital gains. Whereas if they lose money on their trades, investors lose the ability to net any losses against gains in other investments, potentially putting spread bets at a significant disadvantage versus other products such as ETPs.


According to a recent report issued from research firm Investment Trends, the spread betting market has shrunk by over 8% from 92,000 active spread betting clients in the UK to 85,000. In contrast, trading volumes in global S&L ETPs grew by 52% in 2013 [BOOST ETP Short & Leverage ETF/ETP Global Flows Report]. BOOST believes these trends may reflect the growth in investor’s preference for listed S&L investment products that are both highly liquid and secure in preference to an unlisted investment contract traded with a single counterparty and where the investor has full balance sheet exposure in the event of counterparty default. Such events were evidenced in the collapses of MF Global and World Spreads in recent years. 

S&L ETPs have significant advantages over spread betting and CFDS including:

Feature

S&L ETPs

Spread Betting

Lose more than original investment

No

Yes

Listed

Yes on London Stock Exchange

No trade against provider

Liquid

Yes multiple market makers & open ended

Limited to provider

Counterparty risk

Mitigated using collateral

Exposed to providers balance sheet

Can you be knocked out intraday

No due to daily and intra-day rebalance

Yes out of unprofitable and profitable positions

Tax

CGT

None (no CGT or losses are allowable)

Hector McNeil, Co-CEO of BOOST ETP commented, “BOOST welcomes Lord Newby’s statement that the Treasury should look at the significant and unjustifiable tax concessions that spread betting currently enjoys. It is important that leverage and short investment products are treated equally. At BOOST we feel that spread bet investors are disadvantaged by not being able to offset their losses against capital gains. As short and leverage trading can often be a riskier form of investing it is clear this could be a big disadvantage for some investors. We also feel this is not often clearly understood by some of the less sophisticated investors.

“The growth of the short & leverage ETP market indicates an interesting trend against the backdrop of the shrinking spread betting market. It seems that investors are moving towards ETPs, which are exchange listed, transparent and collateralised. We believe this trend will accelerate as investors better understand the risks and benefits of S&L ETPs.”

-END-

Reference

http://www.cityam.com/article/1385688020/spreadbetters-fight-back-over-new-tax-claims

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10479460/Treasury-to-look-at-spread-betting-tax-exemption-after-Lords-raise-concerns.html