eToro UK tax: a guide for investors

Trade Tax Free Full Review
Trader Rating :
10 min read minutes read/Updated: 13.07.2020

eToro has developed a huge following in recent years, and with good reason. It was launched in 2012, and within just two years it had amassed millions of members – and that figure appears to be rising all the time. But is eToro the best CFD broker out there today, and how does its nature as a social trading platform make it different? And how does eToro fit into a trader’s tax obligations? In this eToro review, we’ll see if we can find the answers by looking at how eToro performs compared to others in this sector.

  • Variety of payment methods accepted including PayPal, bank transfer, and credit card
  • Easy access to account statements for tax return purposes and other documentation
  • Competitive fees on offer for some of the available CFDs, such as Euro/US dollar
  • Innovative social trading element allows you to copy trades made by successful traders

How eToro Works

The core principle of eToro is that it is a social trading platform, so as well as offering traditional online trading methods that allow you to choose your CFD assets, you can also choose to automatically copy some of the trades made by other, more experienced traders. This is powered through eToro’s patented CopyTrader system, which makes following your chosen investment guru simple and easy. You don’t have to invest the same amount as others, you can choose to track your chosen trader’s portfolio proportionally to your own investment. Say you invest 5% of the total value of your chosen trader’s investment: if they make profits, then you – before fees and taxes – will then receive 5% of any profits they make.

Ratgeberbilder Artikel Boerse

You can filter the traders you consider copying based on a number of their characteristics, including their appetite for risk and how high their rate of return has been so far. So, you’ll always be able to find a trader who suits your own personal requirements. For full peace of mind, you also receive their full name and some information about their recommended investment path, so you know you’re dealing with a legitimate person. If you want to harness top trading knowledge from across the eToro community, you can use the CopyFunds option to follow an investment strategy based on insights from across the community.

  • Make the most of the CopyTrader system
  • Borrow tips from the professionals
  • Invest proportionally
  • Filter based on risk appetite

The Tax Burden

eToro tax UK rules are complex, and it’s not always easy to work out which tax rules will apply to you. Generally speaking, when you make a profit on eToro, either via copying successful traders or by taking your own investment decisions, you may be required to pay tax on the proceeds if you are based in the UK. Ultimately, it will come down to the decision of Her Majesty’s Revenue and Customs (HMRC) on whether or not you’re considered a trader or an investor. A whole range of characteristics of your trading activity can be taken into account to work this out, including the duration of each trade, the frequency with which you traded, and how trading fits into your wider life and occupation. If you’re considered a trader in this regard, you’ll most likely be liable for income tax, and you may need to pay tax on any income you make above £11,500 in one year through the sole trader self-assessment process. Remember, your total income figure includes your salary from any job you may have, but you may be able to reduce your tax burden by incorporating any losses you make from trading into your total income figure. If you’re considered an investor, you may need to pay capital gains tax on any profits you make above £11,700. It’s wise to seek eToro tax UK advice from a professional before deciding how to report any income you gain.

Sign-up: Keep Records

When it comes to signing up to eToro, the experience is simple and easy. Unlike some other platforms where you might need to wait a long time to get on board, signing up here is quite simple. Firstly, you’re likely to need certain pieces of documentation in order to prove you are who you claim to be. Just as your tax affairs are regulated by a government body (HMRC), trading is also a regulated activity – and eToro is no exception. In the UK, it is regulated by the Financial Conduct Authority, and this body requires that eToro seeks information like proof of address, a government-issued identity card, and more. You should have these on hand so that the signup process is as quick as it can be.

  • Payment methods like Skrill and PayPal accepted
  • Quick sign-up process
  • Documentation required for access
  • FCA-regulated platform

Secondly, you’ll also need to make an initial deposit to eToro in order to start using the platform’s exciting real money trading functions. eToro accepts a wide range of major payment methods, including modern online payment formats like PayPal and Skrill, as well as traditional methods such as bank transfers and credit cards. No matter which of these methods you choose, you should make sure you keep accurate records of the transactions you make, as these could be needed when it comes to filling out an eToro UK tax return, or other official documents, further down the line.

Extracting Your Information

When settling your eToro UK tax bill, you’re likely to find you need lots of information about your transactions in order to work out what you owe. This applies whether you’re classified as a trader or an investor, so it pays to be organised and gather all of this information together well in advance so that you have it in one place. While your taxes need to be paid separately through HMRC rather than through the eToro platform, you can’t pay your tax at the point of earning as you can with a regular job; the platform does make it easy to extract this information. Once logged in, you can navigate to the Portfolio tab (and, if needed, set your account to the “Real” setting) before clicking on the Portfolio drop-down menu. Then, click on “History”, and then the settings icon, in blue, in the top right-hand corner. There, you will be able to find your Account Statement. This document contains a wide range of information about your withdrawals, buy prices and sell prices, and so on. If this process seems too complex or it’s not providing what you need, you can get in touch with the eToro customer service team. Generally, they provide a good service to traders on the platform both for eToro tax UK questions as well as broader questions. As one TrustPilot user put it: “I’ve already had contact with support and every time they were extremely helpful and quick.”

eToro: Platform Experience

Aside from the eToro UK tax implications, the platform itself is remarkably simple to use – and it brings with it lots of advantages to the trader, not least of which are the extensive opening hours and trading time it offers. And while a tax bill may be an inevitability if you’re a dedicated trader and you amass a certain amount of earnings, you can use the innovative features on the eToro platform to boost your efficiency when it comes to trading. For example, you can make the most of the platform’s mobile app to trade on the go, and you can trade when it suits you, 24 hours a day, five days a week between Sunday and Friday evenings. You can also take steps to protect your capital by making use of some of the eToro platform’s risk management tools, such as a default leverage setting of 1:100, although this can be changed if you require more security, and a market exposure limit of one-fifth of your total capital. In terms of fees, eToro does not charge commission fees, but you will need to pay a penalty if your account is inactive for an extended period of time. You may sometimes have to pay to withdraw your earnings on eToro, too, which can add to the costs. Overall, however, while paying tax may be a drag on your return rate, the eToro platform is designed to help the rest of your trading career be as efficient as possible.

guide social trading 3

Boosting Your Earnings

Contrary to the beliefs of some traders, trading is a taxable activity in many circumstances – and you will always need to pay what you owe to HMRC as a result. Because of these eToro tax UK rules, ensuring that you keep as much of your earnings as you can is a smart move. Luckily, eToro is already ahead of this curve. By charging relatively low fees compared to the wider trading industry, you can keep more of your profits even once tax is factored in. As can be seen across the industry in almost all CFD broker comparison studies, eToro as a business makes its profits by charging a percentage fee on the spread between the buy price and the selling price. Some brokers charge high fees at this point, but eToro actually has competitive rates on some of its CFDs. Trading gold, for example, would incur a competitive fee of 45 points, while some calculations have shown that trading one lot of Euro/US dollar on the forex markets could incur a saving of USD$21 compared to competitor platform AvaTrade. What this means is that you can, in theory, keep more of your earnings from eToro, even after tax has been applied. It should be noted, however, that eToro does charge some relatively uncompetitive prices on some of the CFDs it has available for trading, such as the Dax 30 index, fees for which can in some circumstances be as high as 100 points.

eToro: Our Verdict

After a detailed analysis of eToro, it’s clear that this broker is one of the leading names in online trading, and it is arguably a pioneer in the world of social trading. eToro is one of the most innovative trading platforms available on the web today and it has a massive range of advantages under its belt, including a highly-rated customer support function and a suite of handy risk management tools. In addition to this, the social function of the platform is a massive advantage for those traders who need a little coaching when they start out because it means they can choose a trader who fits their own profile and borrow their top tips. Tax, of course, may need to be paid if your eToro earnings push your yearly income above a certain amount, but the platform’s lack of commission fees and competitive spread fees on some CFDs mean that you can keep more of the remainder of your earnings. The ease with which you can extract your financial information from the platform means that you can compile your tax return simply and quickly. And although eToro does have its drawbacks, such as uncompetitive spread fees for some forex pairs, the number of users who remain with the platform shows that it has a loyal and dedicated follower base. It is likely to remain one of the best and most popular CFD brokers available on the market for a long time to come.