Trading CFDs within a SIPP

What are CFDs?

CFDs were traditionally only available to institutional investors. Now they are one of the world’s fastest growing ways to trade the financial markets. A CFD enables you to trade on a financial instrument such as a share or currency without having to physically own it. This means CFDs have a large number of benefits over traditional ways of trading such as buying and selling shares through a stockbroker.

Why trade CFDs within a SIPP?

A SIPP based CFD Trading Account offers the combined benefits of tax relievable contributions, a tax free investment environment and margin based trading. CFDs also enable you to take 'short' positions.

Trade with Existing SIPP Funds in a CFD SIPP Trading Account

You can transfer existing SIPP funds to your SIPP Trading Account.  All payments into your SIPP Trading Account must come via your SIPP operator (subject to their approval).

Trade with Tax Relief

Contributions you make into a SIPP will be subject to tax relief.

The amount you pay is net of basic rate tax; this means that the basic rate tax relief is granted straightaway and reflected in what you pay*. This is illustrated below:

If you wanted to contribute £1,000 in total into your SIPP then you would pay £800 (£1,000 less basic rate relief @ 20%) – your SIPP operator would claim the £200 on your behalf and credit it to your SIPP. A further £200 tax relief could be claimed through your tax assessment if you are a higher rate taxpayer*.

Leverage on the Tax Relief

Remember, this tax relief is money with which you can trade on margin in the normal way!

Your SIPP operator will notify you that the tax relief has been credited to your SIPP. You can then instruct your SIPP operator to transfer your tax relief to your SIPP trading account.

Tax Free Profits

The portfolio can be varied as much as you like with no tax consequences* so that any skilled investor can fully exploit their trading knowledge. There is no capital gains tax on trading profits, stamp duty on trades or inheritance tax† on your fund. The benefit of tax free accumulation compounds over the years.

†Inheritance tax rates are determined by individual circumstances and professional tax advice should be sought.

Hedging

Trading CFDs may allow you to hedge your existing SIPP investment portfolio. For example if most of your scheme assets were in traditional shares but you were worried that markets may go down, taking a ‘short’ position through CFDs, using a small proportion of your SIPP fund, would mean your CFD investment would increase in falling markets, potentially compensating any fall in your share portfolio. If markets were to rise, you may lose your CFD investment.