For those of you who engage in significant/frequent financial trading, how have you (or HMRC) calculated your tax from profits?
Does it fall under capital gains or income tax, and does it depend on certain things such as how long you hold securities? I'm planning on trading US stocks intraday.
Given that I'm thinking about reinvesting any profits for a few years, would it be prudent to set up a limited company so that profits would be taxed at a lower rate (20-25%) if I don't withdraw anything personally?
I would have expected this to be quite simple since I imagine there are quite a few day traders out there, but I haven't found any clear answers.
Alternatively can anyone recommend an expert in this area?
Thanks in advance.
Tax on financial trading
I only invest over the long term so I am not sure on the tax treatment on short term trading. I know in the US where I have short term and long term funds that that the tax treatment is different based on how long you hold something. Very short term is counted as income but beyond a threshold it is treated as a capital gain.
Hi xitian,
It might sound kind of obscure, but if you plan on reinvesting profits, you might want to check into opening a limited company in Estonia. Estonia levies no corporate income tax until the time profits are distributed through dividends. (At the time of distribution, the company would have to pay 21%). But in the meantime, there is basically no tax whatsoever, as long as the profits remain inside the company.
Additionally, Estonia has quite an easy process for establishing new companies, and they don't even require any initial capital to be immediately deposited. Almost everything is available in English as well, and since it's an EU country, you shouldn't encounter any "withholding tax" type issues.
A couple of cons: you might find it a bit difficult to fulfill the validation requirements of whatever brokerage you choose (since the account would be in the name of the company). Also, you'll need to have someone do some basic bookkeeping (in order to file an annual report for example).
Here's a link to the Estonian Finance Ministry's summary of their tax system: http://www.fin.ee/index.php?id=621
And here's their commercial registry website: http://www.fin.ee/index.php?id=621
If you'd like some further details, feel free to contact me...
It might sound kind of obscure, but if you plan on reinvesting profits, you might want to check into opening a limited company in Estonia. Estonia levies no corporate income tax until the time profits are distributed through dividends. (At the time of distribution, the company would have to pay 21%). But in the meantime, there is basically no tax whatsoever, as long as the profits remain inside the company.
Additionally, Estonia has quite an easy process for establishing new companies, and they don't even require any initial capital to be immediately deposited. Almost everything is available in English as well, and since it's an EU country, you shouldn't encounter any "withholding tax" type issues.
A couple of cons: you might find it a bit difficult to fulfill the validation requirements of whatever brokerage you choose (since the account would be in the name of the company). Also, you'll need to have someone do some basic bookkeeping (in order to file an annual report for example).
Here's a link to the Estonian Finance Ministry's summary of their tax system: http://www.fin.ee/index.php?id=621
And here's their commercial registry website: http://www.fin.ee/index.php?id=621
If you'd like some further details, feel free to contact me...
Thanks for the input guys.
nomadic, thanks for that detailed suggestion of the possibility in Estonia. It does sound like a very effective option since there would be no tax during the "reinvestment/compounding" phase.
I agree that I would need to contact my broker to ask whether they would accept an account from Estonia. I presume to set up a company I would also need an address there as well?
Would you mind reposting the link for the commercial registry website, as it seems you posted the taxation link twice? I found http://www.rik.ee/commercial_register, but that doesn't actually seem to include any info on the requirements of registering a company and its obligations.
Do you already have experience of operating a business registered in Estonia before, or is it just random knowledge that you have?!
Thanks,
James
nomadic, thanks for that detailed suggestion of the possibility in Estonia. It does sound like a very effective option since there would be no tax during the "reinvestment/compounding" phase.
I agree that I would need to contact my broker to ask whether they would accept an account from Estonia. I presume to set up a company I would also need an address there as well?
Would you mind reposting the link for the commercial registry website, as it seems you posted the taxation link twice? I found http://www.rik.ee/commercial_register, but that doesn't actually seem to include any info on the requirements of registering a company and its obligations.
Do you already have experience of operating a business registered in Estonia before, or is it just random knowledge that you have?!
Thanks,
James
Hi James,
Yes, I think you would need an Estonian address, but there are companies that can provide that for you as a service.
Sorry about the duplicate link. The rik.ee one was indeed the one I meant to provide. If you're able to obtain the necessary login credentials, you can even create the company on-line. I'll send you a PM with some further info, and an idea on maybe how to obtain it without having to travel to Estonia.
By the way, here's another link that probably provides a better summary of information in regards to forming a company: http://www.investinestonia.com/en/estab ... -a-company
Yes, I think you would need an Estonian address, but there are companies that can provide that for you as a service.
Sorry about the duplicate link. The rik.ee one was indeed the one I meant to provide. If you're able to obtain the necessary login credentials, you can even create the company on-line. I'll send you a PM with some further info, and an idea on maybe how to obtain it without having to travel to Estonia.
By the way, here's another link that probably provides a better summary of information in regards to forming a company: http://www.investinestonia.com/en/estab ... -a-company