Sale of Property & Shares >> Tax Treatment of Other Share Investment Products

Contracts for Difference (CFD)

This type of share transaction had become very popular during the boom years. These are a specialist product marketed by Stockbrokers and do not involve direct ownership of shares.  Contracts for Difference are capital assets to which the CGT rules apply.
The contracts require two parties to take opposing positions on the future value of a particular asset or index. Investments are often made on a margin of 20% of the contract amount. As well as the difference in value of the asset from beginning to end of the contract period, certain other notional income flows are taken into account in calculating the overall gain or loss.
The first of these is notional interest, calculated on the nonmargined value of the underlying asset for the contract duration.
The second is the notional income which would have been earned by the asset during the contract period e.g. dividends.
Where the contract is long (expectation of a rise in price), notional interest is a deduction and notional income a credit in the calculation.
Where the contract is short (expectation of a fall in price), notional interest is a credit and notional income a deduction.
The chargeable gain will be calculated on the gain or loss resulting from the computations above and including a deduction for all necessary broker fees incurred in the full contract.
Actual interest paid, if any, on the margin amount put up will be liable for income tax in the ordinary way and does not come into the CGT calculation.
We can provide more detailed advice on the taxation treatment of these products by way of consultation for which an extra charge will arise.

Exchange Traded Funds (ETFs)

These are another form of specialist product for investing in stock markets. While they can be bought and sold like any other share they are treated differently for tax purposes. The normal capital gains tax rules do not apply. 
Broadly speaking any gains made on dealing in ETFs will be liable for tax at 28%. Any losses incurred on an ETF cannot be offset against other ETF gains or other capital gains. 
Dividend payments from an ETF are liable for tax at the 20% rate only. There is no charge to income tax at the higher rate. However, if you are not liable for income tax you must still pay the 20% rate on the ETF dividend. 

Offshore Investment Products

These are also a special investment type product. The normal capital gains tax rules do not apply to them. The financial advisor organising/promoting the investment will normally explain the tax rules involved which are complex. Broadly speaking, you must ensure you declare the making of the investment on your tax return and any gains realised will be taxable at 28%.