How Are Forex Trades Taxed? A Comprehensive Guide

Although forex trading was established decades ago, it only became popular more broadly in the 1990s and early 2000s with the rise of the internet. This made forex and other trading activities much more accessible, boosting its popularity.

Of course, when enough people make money from any kind of activity, the government usually seeks ways in which to tax any income that is earned. It’s no different with forex trading.

However, in the UK the tax rules around forex trading can be complicated. For a start, how you are taxed (and how much) will depend on the type of forex trading you are undertaking and how much money you’re earning from the activity.

In this blog we’ll give you an overview of how forex trades are taxed in the UK. However, this does not constitute tax advice. If you are in any doubt about how much tax you should be paying on your trading activities, it’s essential that you consult with an accountant.

What kind of forex traders pay tax?

If you make enough profit on your forex trading activity, you will need to pay tax in the UK. That means that the majority of forex traders pay some form of tax on their profits.

Under UK tax law, how you are taxed on your forex trades will depend on whether His Majesty’s Revenue and Customs (HMRC) classes your trading as a side hustle or as a main profession.

HMRC will tax you using capital gains tax rules if it deems your trading activity to be a side gig or an additional source of income. However, if HMRC believes your trading activity is your main source of income then you will pay income tax on your trades.

Are there any tax exemptions for trading?

Yes, in the UK there is a £1,000 tax-free allowance for trading income. However, if you exceed that amount you will need to complete a self-assessment tax form with HMRC.

How does HMRC decide what kind of forex trader you are?

Commonly, HMRC will look at how much you’ve made on your forex trading in a given tax year, as well as what other source (or sources) of income you have.

If you are using instant forex funding as a way of raising some extra money alongside your earnings from a full-time job, HMRC will consider you to be a part-time trader, or someone with a side hustle.

They will look at how much you earn from forex trading, how many trades you make and how often you’re trading, as well as what tax you pay on the rest of your income when working this out.

However, if HMRC considers your trading activity to be more “professional” or to resemble a business, then income tax rules may apply instead.

When making this assessment, HMRC will look at how much time you spend trading, whether the money you make from forex trades is your main source of income and whether this money is used to pay for the majority of your living expenses.

If you trade consistently and with a great deal of organisation, the UK’s tax authorities are more likely to consider trading your “job” and therefore tax you according to income tax rules rather than capital gains tax.

What tax will I pay if I’m a part-time trader?

Usually if you’re deemed to be a part-time trader, you will have to pay capital gains tax on your earnings if you make more than the tax-free allowance. As of the 2025/26 tax year, this allowance stands at £3,000.

What rate of tax you pay on earnings above that threshold will depend on whether you are a basic rate or higher rate income tax payer. For those who pay the basic rate of income on other earnings, you’ll be subject to an 18 per cent tax on your “chargeable assets”.

However, this 18 per cent rate applies provided your forex trading gains don’t push your overall income into the higher rate band. If they do, you’ll pay the basic rate of capital gains on everything you earn up to that limit and the higher rate of 24 per cent on any earnings above it.

Calculating your tax position can be challenging if you’re new to this, and the tax rates are subject to change, so it’s important to seek professional advice if you are unsure.

What tax will I pay if I’m a full-time trader?

If forex trading is your main source of income, you will need to pay income tax on your earnings rather than capital gains tax.

Under income tax rules, you have a tax-free allowance of £12,570 per year. After that, any earnings you make are charged at the basic rate of 20 per cent, until you reach the threshold for the higher rate. This kicks in if you earn £50,271 or more in a year.

If you are paying income tax on your forex trading, it is also likely that you will need to make national insurance contributions (NIC). This is why it’s important to get support from an accountant, to ensure you pay what you owe if you are a full-time trader.