Miscellaneous income?

The decision in Cooper (H M Inspector of Taxes) v Stubbs [1925] 10 TC 29 held that futures transactions carried out by individuals “outside” of their cotton broker business (i.e. not with a view to receiving or delivering cotton) were not a trading activity but taxable as miscellaneous income under Schedule D case VI.  Legislative changes mean that miscellaneous income (previously Case VI) is now irrelevant; i.e. if there is no trade income will be taxed as capital (unless specific anti-avoidance legislation applies - see transactions with guaranteed returns below).

In the case of Lewis Emanuel & Son Ltd v White [1965] 42 TC 369, the court considered whether an individual was trading and concluded on the facts that the short term trades of shares were speculative and akin to gambling.  While certain types of spread betting transactions may be non-taxable this is not the case for trades in futures or options.

Transactions with guaranteed returns

Where transactions in futures (or other financial instruments) are not part of a trade, then capital gains tax treatment will not automatically apply if disposals of futures or options form part of a number of transactions which are designed to produce a guaranteed return.   A guaranteed returnarises when disposals of futures or options net off such that risks from fluctuations in the value of the underlying subject matter are eliminated or reduced and produce a return which in substance is similar to a return on an investment of money at interest (s. 555- 569 ITTOIA 2005).