Trading Taxes in the UK - CGT Guide

What are UK trading taxes on shares and derivatives?

UK Capital Gains Tax (CGT) is the main tax on trading profits outside an ISA or pension wrapper. For the 2025/26 tax year (6 April 2025 to 5 April 2026), basic-rate taxpayers pay 18% and higher/additional-rate taxpayers pay 24% on gains above the £3,000 annual exempt amount. Spread betting profits are tax-free, CFD and share profits are subject to CGT, and systematic trading can be reclassified as self-employment income under HMRC’s badges of trade test.

According to HMRC’s Capital Gains Tax rates guidance, the Autumn Budget 2024 raised the headline rates from 10%/20% to 18%/24% for non-property disposals on or after 30 October 2024 — the first CGT rate rise of this magnitude in over a decade. Per HMRC’s own allowance history, the annual exempt amount has been cut from £12,300 in 2022/23 to £3,000 for 2025/26, a 76% reduction in three tax years.

Why the shrinking allowance matters for active traders

A £3,000 allowance is low enough that most traders running more than a handful of six-figure positions per year will cross it. A trader who nets £18,000 will pay CGT on £15,000 — about £3,600 at the 24% higher rate. Three years ago the same profit would have been fully covered by the £12,300 allowance. That is why the bed-and-ISA strategy and Section 104 pool management have moved from “nice to have” to “necessary arithmetic.”

Tax year timeline

The UK tax year runs from 6 April to 5 April. Key dates:

Date	Action
6 April	New tax year begins; fresh £3,000 CGT allowance and £20,000 ISA allowance unlock
5 October	Deadline to register for Self-Assessment if you are newly liable
31 January	Self-Assessment filing deadline and payment of CGT on prior tax year
5 April	Tax year ends; last day to use that year’s ISA and CGT allowances

Share identification rules: the three-step matching order

HMRC does not let you choose which lot of shares you sold. When you dispose of shares of the same class, disposals are matched in this fixed order.

1. Same-day rule

Shares sold are first matched against any shares bought on the same trading day. This stops traders from selling and rebuying on the same day to manufacture a disposal price.

2. Bed-and-breakfast rule (30-day anti-avoidance)

Next, disposals are matched against any purchases in the following 30 days. This is the UK analogue of the US wash sale rule. If you sell 500 shares of a stock at a loss and rebuy 500 within 30 days, the loss is disallowed on the matched portion and instead added to the cost of the new holding.

3. Section 104 pool

Any remaining shares are matched against the Section 104 holding — a continuously updated pool of all earlier purchases at their average cost. Example: buy 1,000 shares at 75p (£750) and 500 at 85p (£425). The pool has 1,500 shares at average 78.33p. Selling 800 at 90p gives proceeds of £720 minus cost of £626.64, so a taxable gain of £93.36.

Spread betting vs CFDs vs direct shares

Identical directional bets carry very different tax outcomes:

Instrument	CGT on profits	Losses deductible?	Annual exempt amount applies?
Spread bet on FTSE 100	No (treated as gambling)	No	N/A
CFD on FTSE 100	Yes, 18%/24%	Yes, against capital gains	Yes
Physical FTSE 100 ETF	Yes, 18%/24%	Yes, against capital gains	Yes
Same ETF inside a Stocks and Shares ISA	No	No (but none needed)	N/A

The trade-off is symmetry. Spread betting is tax-free on gains but also non-deductible on losses. A trader with lumpy performance (big wins and big losses) generally benefits from the CFD or ISA route because losses carry forward.

The badges of trade trap

If HMRC concludes your activity is a trade, not an investment, profits move from CGT (18%/24%) to Income Tax (20%, 40%, 45%) plus Class 2 and Class 4 National Insurance. Per HMRC Business Income Manual BIM20205, the nine badges of trade include frequency of transactions, length of ownership, profit-seeking motive, how the activity is organised, financing, and modification of the asset. No single factor decides it — HMRC weighs the pattern.

Counterintuitively, reclassification is not always bad. Losses are more flexible, and trading costs (subscriptions, desk fees, a home office apportionment) become deductible. But the combined Income Tax and NI charge on a higher-rate trader can exceed 47%, versus a flat 24% CGT.

Tax-efficient trading strategies

Maximise the ISA wrapper

The £20,000 annual Stocks and Shares ISA allowance is the single most powerful shelter available to UK traders:

• Fund the ISA first each 6 April; gains and dividends inside it are permanently tax-free.
• Bed-and-ISA: sell a taxable holding, immediately rebuy inside the ISA (usually same-session with most brokers). Any future gains on that position escape CGT. The disposal itself still uses the annual exempt amount or creates a loss.
• Any unused allowance is lost at year-end — it does not roll over.

Use the £3,000 allowance deliberately

Realise enough gains each year to use the full £3,000 exempt amount; time large disposals to straddle 5 April to get two allowances; and for jointly held assets, coordinate with a spouse to double up (£6,000 between two allowances).

Harvest losses within the four-year window

Capital losses must be reported to HMRC within four years of the end of the tax year in which they arose (TMA 1970 s43). Unreported losses are lost forever. Once claimed, losses carry forward indefinitely. Beware the 30-day rebuy rule: if you sell at a loss and buy back within 30 days, the loss is deferred into the new holding’s base cost.

Record keeping for HMRC

HMRC requires records for at least five years after the 31 January filing deadline (six years if you are a partner or trustee). Essential records:

• Contract notes for every buy and sell
• Section 104 pool running calculations
• Records of any same-day or 30-day matching
• Loss claims with dates and amounts
• ISA transaction records (even though gains are tax-free, you may need to prove timing)
• Dividend vouchers — dividend income is taxed separately, with only a £500 dividend allowance for 2025/26 (down from £2,000 in 2022/23)

A dedicated journal that maintains the Section 104 pool in real time and tags disposals against the 30-day window turns a January 31 scramble into an export.