Do you have to pay tax on unrealised profit i.e. held positions, especially Darwins on Darwinex? [UK]

Hi,

My understanding is that for any asset that is disposed of or sold, you have to inform HMRC of those profit / losses each year, and pay Capital Gains Tax on the profit if above the tax-free allowance. And that CFDs are one of these types of asset.

My question is what do you do if you hold a position when you get to the end of year? The profit is unrealised because you didn’t close the position yet (maybe it’s a long term hold) so would you leave it out and wait until you close it and then it becomes part of the tax year wherever the position closed and any profit or loss it generates?

If so, I’m now thinking about how you would treat tax if you’re investing in DARWINS on Darwinex. It looks like a “Darwin” is a financial instrument based on the performance of someone’s trading account (adjusted to a VaR of 10%) which you can then buy or sell that darwin asset, to copy their trading performance. So in this case, wouldn’t your CFD be one with the darwin asset, and assuming you hold that asset for say many years, you wouldn’t “realise” the profit until you sell the darwin asset?

So basically, if you invest in darwins - would you be paying CGT as you go along each year even if holding onto the darwins, or would you only pay CGT once you close the position on that darwin and realise the profit, even though that darwin itself is based on many hundreds or thousands of trades?

Or when you invest in a darwin, are you actually opening and closing a duplicate of the many trades CFDs rather than one big CFD of a darwin, in which case I’d understand you would pay as you go along even if continuing to invest in a darwin.

Hope that makes sense?

Thanks,
Tris

Hi tris,

CFDs are only taxed via capital gains tax on profit. So if you hold a position for 3 years you will only get taxed when you finally close the position. If you hold it whether you have unrealised gains or losses you dont pay tax on it. Remember any losses can be offset the following year too.

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Hi tradeforex077,

Ok thanks for that. So I guess now I just need to find out how the darwinex site works, whether they class your investment into a Darwin as 1 open CFD contract, or somehow many open and closed CFDs in line with the copied portfolio.

Do you happen to know how many years the losses can be carried forward? I feel like I read 4 yrs maybe somewhere on HMRC.

Thanks,
Tris

Yeah if I remember right, its 4 years. But double check it on the HMRC’s site.

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Ok thanks :ok_hand: