{"id":19473,"date":"2022-06-28T16:16:36","date_gmt":"2022-06-28T15:16:36","guid":{"rendered":"https:\/\/taxfix.com\/en-uk\/?p=19473"},"modified":"2025-02-11T16:26:22","modified_gmt":"2025-02-11T16:26:22","slug":"trading-vs-investing-how-are-they-taxed-differently","status":"publish","type":"post","link":"https:\/\/taxfix.com\/en-uk\/investor-capital-gains-tax-returns\/trading-vs-investing-how-are-they-taxed-differently\/","title":{"rendered":"Trading vs investing – how are they taxed differently?"},"content":{"rendered":"\n

Trading and investing are some of the most commonly used ways to make extra money, especially for high earners. Whether you\u2019ve bought shares<\/a> in your favourite company as a one-off investment or been mining crypto<\/a> tokens as your side gig<\/a>, it\u2019s vital that you know which category your activity falls under. Why? <\/p>\n\n\n\n

Because of tax.<\/p>\n\n\n\n

Both income sources are taxed very differently, and if you don\u2019t know which approach to take based on your circumstances, you could find yourself in trouble with HMRC.<\/a> Not to mention receiving a nasty tax bill!<\/p>\n\n\n\n

What\u2019s the main difference between trading and investing tax?<\/h2>\n\n\n\n

As a basic rule to follow, the main difference between trading and investing is the type of tax you will pay on any profits you make. <\/p>\n\n\n\n

If you\u2019re a regular trader, you will be liable to pay both Income Tax<\/a> and National Insurance (NI).<\/a> This is because HMRC views multiple trading transactions as a source of income-generating activity. Whereas with investing, these tend to be seen as more one-off type transactions. The lack of regular activity with investing is why they are subject to Capital Gains Tax<\/a> instead of Income Tax and NI.<\/p>\n\n\n<\/div> \n\n

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Capital gains tax<\/b> rates in the 2025\/26 tax year. It\u2019s paid on profits over the \u00a33,000 CGT allowance \ud83d\udc47<\/span><\/p>\n\n\n\n\n\n\n\n
Type of asset<\/b><\/td>\nBasic rate<\/b><\/td>\nHigher rate<\/b><\/td>\n<\/tr>\n
Shares<\/span><\/td>\n10%<\/span><\/td>\n20%<\/span><\/td>\n<\/tr>\n
Residential property<\/span><\/td>\n18%<\/span><\/td>\n24%<\/span><\/td>\n<\/tr>\n
Bitcoin\/cryptocurrency<\/span><\/td>\n10%<\/span><\/td>\n20%<\/span><\/td>\n<\/tr>\n
Other<\/span><\/td>\n10%<\/span><\/td>\n20%<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n <\/div>\n<\/div> \n\n
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If you trade\/invest through a limited company, any profits or gains you make will also be subject to Corporation Tax<\/a> at the same rate.<\/p>\n\n\n\n

Trading vs Investing <\/h2>\n\n\n\n

Trading tax pros<\/h3>\n\n\n\n

Because trading is subject to Income Tax and NI, this means that you can claim more in expenses against the income you make, helping you to reduce your overall tax bill! For example, types of expenses you can claim include things like:<\/p>\n\n\n\n