CFDs or Spread Betting: Risks and Tax Compared

A contract for difference (CFD) and a spread bet are two ways to bet on whether a price will rise or fall without ever owning the thing being priced. Both use borrowed money, so a small deposit controls a much larger position, and both can lose more than the cash in the account. The FCA describes CFDs as "essentially a bet rather than the purchase of an asset, and often involve borrowing money"¹.

The tax treatment is the clearest difference. Betting and gaming, including pool betting and games of chance, carries a 0% VAT rate², and spread betting profits are usually treated as tax-free in the UK. CFD gains do not get that treatment. The FCA restricted the sale of CFDs to retail customers in 2019, limiting borrowing and requiring loss-rate warnings³.

The FCA warned in 2025 that investors in CFDs risk losing UK protections through redirection offshore³. That warning matters more than any feature comparison, because it decides whether the Financial Ombudsman Service and the Financial Services Compensation Scheme are available to you at all.

CFDs and spread betting: both bet on price moves without owning the asset

Neither product gives you a share certificate, a bond or a fund unit. You take a position on a price, and the profit or loss is settled in cash. The FCA's own description of a CFD is blunt: it is "essentially a bet rather than the purchase of an asset, and often involve borrowing money"¹. A spread bet works the same way in economic terms, with the added feature that the outcome is treated as betting rather than as an investment gain.

That distinction shapes everything else. Because you never own the underlying asset, you do not receive dividends, you cannot vote, and you have no shareholder rights. What you have is a contract with a firm, and the value of that contract depends on the firm's ability to pay. Dealing in investments is a regulated activity in the UK, so trading platforms require authorisation from, and are regulated by, the FCA¹.

The Financial Ombudsman Service has handled both kinds of complaint. In one case, a customer named Victor chose an account that had no inbuilt caps on either profits or losses, which he would need to fund with his own money⁵. In another, a customer named Geraldine lost £15,000 when she started using a spread betting platform⁶. These are not exotic outcomes; they are the ordinary shape of the product.

If you want exposure to markets without leverage, the alternatives are ordinary investments: investment funds pool money across many holdings, ETFs are listed on a stock exchange so you can buy and sell them at any time that the exchange is open⁷, and investment trusts are a type of collective investment which allows you to spread your risk and access investment opportunities⁸. Investment trusts are more risky than bank savings accounts but offer the chance of a growing income and potentially capital growth too⁸.

Leverage and margin: how losses can exceed what you put in

Leverage is the whole point of both products and the source of the danger. You put down a fraction of the position's value as margin, and the firm lends you the rest. If the price moves against you, the loss is calculated on the full position, not on your deposit. That is how a position can wipe out the account and leave a debt.

The ombudsman's case studies show the pattern. Victor's account had no inbuilt caps on either profits or losses, funded with his own money⁵. Geraldine lost £15,000 on a spread betting platform⁶. In a third case, a customer complained about a misunderstanding that left him owing £2,500 to a trading company⁹. None of these required unusual market conditions.

For context on how often losses of this size happen in the wider fraud and computer misuse statistics, around a fifth (19%) of victims with a loss incurred a loss of between £250 and £999, and the remainder (11%) incurred a loss of £1,000 or more, with 1% losing £10,000 or more, in the year ending March 2025¹⁰. Those figures cover fraud generally, not trading losses, but they show that four-figure and five-figure losses are not rare events.

The FCA's 2019 restriction on selling CFDs to retail customers was aimed squarely at this. It limited borrowing and required loss-rate warnings³. The restriction does not cap your loss; it changes how the product can be sold and what you must be told before you open an account.

Tax: spread betting profits are usually tax-free, CFD gains are not

This is the difference most people search for, and it is real. Betting and gaming, including pool betting and games of chance, carries a 0% VAT rate². Spread betting sits in that world for tax purposes, which is why its profits are usually treated as tax-free in the UK. CFD gains do not get that treatment.

No rule allows CFD losses to be set against capital gains tax, so no such offset should be assumed. Some gains sit outside capital gains tax altogether: chargeable event gains are not capital gains, so capital losses and the annual exempt amount cannot be set against them¹¹. That is a different product, but it illustrates the principle that not every gain or loss slots neatly into the capital gains system.

For the rates that do apply to capital gains, the figures given in the 2025 Budget documentation are 32% on gains on carried interest for individuals, and 14% on gains subject to business asset disposal relief¹². Those are specific categories, not a general CFD rate, and they are the capital gains rates stated in that documentation.

Anyone with a specific CFD tax position needs to check it with HMRC or a tax adviser. The general point stands: the tax-free treatment that makes spread betting attractive does not extend to CFDs, and the two products should not be treated as interchangeable on that basis.

Costs: spreads, overnight financing and commission

Both products carry costs that are easy to miss because they are built into the price rather than billed separately. The FCA's scheme rules for consumer composite investments list the one-off exit costs a firm must disclose: proportional fees; the bid-mid spread to sell the product and any explicit costs, charges or other penalties for early exit; CFD-related costs; exchange, clearing and settlement fees for derivative-based investments; and exit penalties depending on the holding period¹⁴.

The same list appears in the FCA's policy statement and in the underlying legislation, in near-identical wording¹⁵. The repetition matters because it shows what the regulator considers a cost a customer should be shown: the spread paid to get in and out, any commission, any financing charge for holding a position overnight, and any penalty for closing early.

The bid-mid spread is the difference between the price at which you can buy and the price at which you can sell. It is charged on every round trip, so frequent trading multiplies it. Overnight financing is the cost of the borrowed money that keeps the position open; it accrues for as long as you hold. Commission, where charged, is usually a separate line.

For comparison, ordinary investing has its own cost structure, and the site covers it in platform fees and charges and dealing charges. The difference is that ordinary investing costs are typically a percentage of a position you own outright, while CFD and spread betting costs include the financing of money you have borrowed.

FCA limits on selling CFDs to retail customers

The FCA restricted the sale of CFDs to retail customers in 2019³. The restriction limited borrowing and required loss-rate warnings¹. It was a permanent change, not a temporary measure, and it applies to firms selling CFDs to retail clients in the UK.

The effect has been visible in the market. Twenty-four CFD firms closed in the crackdown on misuse of UK authorisation³. Dinosaur stopped selling CFDs in May 2025 after being fined £338,000 by the FCA in March³. The FCA also warned in 2025 that investors in CFDs risk losing UK protections through redirection offshore³.

What the restriction does not do is make CFD trading safe or suitable. It changes the terms on which the product can be offered: how much borrowing is allowed, what warnings must be given, and what the firm must tell you about the proportion of retail clients who lose money. The decision to trade, and the risk of loss beyond your deposit, remain with you.

The FCA has also made clear that broking firms are not obliged to offer trading facilities to clients¹. A platform can decline your business, restrict what you can trade, or close your account, and that is not a breach of any duty to you.

Offshore providers can strip away your UK protections

The single biggest practical difference between one CFD provider and another is not the platform or the spread; it is where the firm is authorised. If your account sits with a UK-authorised firm, the Financial Ombudsman Service and the Financial Services Compensation Scheme are potentially available. If it is moved offshore, they may not be.

The FCA warned in 2025 that investors in CFDs risk losing UK protections through redirection offshore³. The FSCS is explicit about the condition: it can only protect you if the firm was authorised by the Prudential Regulation Authority or the Financial Conduct Authority, and if your investment was a regulated product¹⁶. The FSCS is the UK's statutory compensation scheme¹⁷, and its rules are set by the FCA and the Prudential Regulation Authority¹⁸.

For customers who move abroad, the picture changes again. If you are a UK or EEA-based customer with a UK-authorised bank, building society or credit union, the FSCS still protects your money²⁰. But for UK citizens based in the EEA banking with an EEA branch of a UK firm, the FSCS will no longer protect your savings, and an EEA scheme in the country you are banking in will have taken over²⁰.

The same logic applies to trading accounts. A firm authorised in another country is supervised by that country's regulator, and any compensation scheme that applies is that country's scheme. The FSCS protection checker's results are based on the FCA's Financial Services Register, which you can search yourself to check if your firm is authorised²¹.

How to check whether a CFD provider is authorised

The check takes a few minutes and is free. The FSCS sets out two steps: check your provider is authorised by the Financial Conduct Authority, and then find out if the particular activity that the authorised firm is carrying out for you is regulated by the Prudential Regulation Authority or the FCA⁴. Both steps matter, because a firm can be authorised for one activity and not another.

The FCA's Firm Checker is a tool to help consumers check if financial services firms are authorised and have permission to sell products and services²². The Financial Ombudsman Service also points consumers to the FCA's Firm Checker to confirm the firm is authorised and help avoid scams²³. You can check the Financial Services Register on the FCA's website at register.fca.org.uk to see if the firm mentioned is authorised²⁴.

When you search, use the firm reference number where you have it, because that gives the most accurate results²⁵. Check that the firm is authorised and that it has permission for the specific activity you are dealing with. The FSCS says you can check whether a provider or adviser is authorised by the PRA or FCA on the FCA register²⁶, and that investment protection requires the provider to be authorised by the FCA or PRA²⁷.

If the firm is not on the register, or is on it but without permission for what it is offering you, that is the answer. The FSCS cannot protect you if the firm was not authorised, and the ombudsman cannot consider a complaint about a firm it does not cover.

Unauthorised promotions and where to get help

Promotions for these products are regulated, and unauthorised promotions are a recurring problem. Financial promotions communicated by an unauthorised merchant who offers a third-party lender's regulated deferred payment credit agreements need to be approved by a FSMA authorised person under section 21(2)(b) of FSMA²⁸. The same principle runs through the financial promotion rules: someone must be accountable for what is advertised.

The FCA has pursued this. Lucy Beck's trial on FCA allegations of unauthorised financial promotions of foreign exchange CFDs has been set for 12 June 2028³. The promotion of unfair commercial practices in, or in connection with, a code of conduct is prohibited²⁹, and the Competition and Markets Authority updated its guidance on unfair contract terms (CMA37) in July 2026³⁰.

If something has gone wrong, the route is a complaint to the firm first, then the Financial Ombudsman Service. The ombudsman handles complaints about banking and payments²³ and about investments, including capital protected structured investments³¹. It is free to consumers. The ombudsman's compensation page explains what it can award¹³.

For free, impartial help with the wider money picture, MoneyHelper offers guidance on money decisions. If losses have pushed you into problem debt, debt advice charities can help, and the debt section covers the options. The investment scams page covers warning signs, and getting spread betting losses back through a complaint deals with that specific route.

Where protection stops

The protections around these products are real but bounded. The FSCS can only protect you if the firm was authorised by the PRA or the FCA and if your investment was a regulated product¹⁶. The FSCS is the UK's statutory compensation scheme¹⁷, and its limits and rules are set by the FCA and the Prudential Regulation Authority¹⁸.

Some things are outside the scheme entirely. Unregulated activities will not be protected by the FSCS, such as housing associations, sports and social clubs, NHS foundations, and co-operative schools¹⁸. The FSCS also states that it does not protect certain investment types because they are not types of investment it can protect³⁴. For pensions, it can only protect you if the FCA has authorised your pension provider³⁵.

The ombudsman's reach is similarly bounded. It can look at complaints about firms it covers, and it can award compensation, but it does not guarantee that you get back what you lost. The ombudsman's own guidance on compensation sets out what it can do¹³.

The practical conclusion is that the strongest protection available to a retail customer is dealing with a UK-authorised firm, on a regulated activity, and keeping the position size within what you can afford to lose entirely. Everything else, including the FCA's 2019 restriction on CFDs³, changes how the product is sold rather than removing the risk of loss.