One of the problems with traditional investment: Taxation.
For pension holders, there are some significant tax breaks. If you invest in your own company’s pension scheme, you stand to see a nice discount in that you won’t have to pay the basic income tax on the return of that investment. Unfortunately, there aren’t many opportunities like this one out there for investors.
It looks like taxes will only rise in the future. In fact, many economists will point out that the UK has the fastest rising tax rates throughout the entirety of Europe.
A good stock is a great thing to have, but too often, you’ll find a good chunk of it taken away by the government. And when it comes to property taxes for real estate, income tax for self employment or a second job, too many investments are losing too much on taxes.
This is just another reason why sports arbitrage trading is becoming more and more popular.
In the UK, sports arbitrage guarantees 100% tax-free profits.
You don’t always realise it as you’re paying, but taxes can eat up nearly fifty percent of your yearly income. It feels like it’s just a little here and a little there, but think about it: Income tax, road tax, sales tax, property tax, income tax on investments, and on and on. It adds up to a lot of money.
The tax-free status of sports arbitrage profits in the UK is a result of this country’s tax treatment of all winnings from gaming: in 2001, the Chancellor decreed that individual punters would not longer pay betting duty on their wins. In a time of recession (or coming recession, depending upon who you ask), this puts more money in the pockets of the UK citizen savvy enough to jump into the world of arb betting, this gets the economy moving, at least in some small way.
Sports arbitrage trading is one of the very few options for a 100% tax free income. At least, it’s hard to name another completely legal tax-free income source off the top of your head, isn’t it? Yet, the UK government has legislated that profits on arbitrage gaming will remain tax free for now and well into the foreseeable future.
However, where they can establish a “sole or main income” ruling then under the Income & Corporation Taxes Act speculative profits are fully taxable under D Case I as trading income. In order to protect yourself from any tax liability on your trading profits, no matter how large they become, all you need is to be able to demonstrate that betting is a hobby and not your sole or main source of income. If sports-arbitrage was to become your main source of income (as it is for many professionals) then a simple, perfectly legal way to avoid paying taxes on the income would be to engage in another activity which pays a small income so that you may legitimately claim that your betting is a hobby.
Examples of this might be
- a buy-to-let property which generates rental income
- part-time consulting work or a part-time job whose income you declare to the IR
- details of any other activity from which you draw an income you can declare on your tax-return
Fees and Taxes
The only fees you pay to trade are those incurred when transferring money. Actually, most transfers are free but for those which are not, if you are efficient with your cash-flow management, you can reduce you transfer fees considerably and keep almost all of your return.
Right now, the average sports arbitrage trader makes about GBP2,500 every month. (note, as a beginner you will probably not make that much right away – it will first take you 4-6 weeks to become comfortable with your trading processes).
Income of 2,500 a month equates to 30,000 a year, tax-free.
By comparison, look at the situation of someone earning a salary of GBP50,000 a year. After deductions of income tax, national insurance et al, what are you left with?
30,000 a year.
But wait a minute, what if you take into account the cost of maintaining your car for daily commuting, petrol (or rail/bus fare), lunch breaks, new clothes; all those extra expenses that come with having a job in the first place? On a salary of 50,000 per year you end up with a lot less.
Taking into account all of the above, the fact is that a profit of 30,000 a year made with sports arbitrage trading is equivalent to a taxed salary of about GBP 60,000 per year.
It probably won’t seem like that at first. When you first get into arb trading, of course, you’ll want to make modest investments to test the waters. And realistically you can only expect between a 2% and 5% return on a typical investment. But the profits accumulate quickly. As your capital grows, so you will be able to expand the numbers of trades you can have in play at any given time.
Five percent of GBP500 is GBP25, but five percent of 10 similar trades is GBP250. With enough capital there is nothing to stop a trader from placing 10 or more trades per day. Indeed many do exactly this.
But a word of caution:
Whilst excellent profits are there to be made in sports arbitrage, and it follows that if you are able to reinvest your profits, this will result in even higher profits, do not fall for the extrapolated argument that some con-artists will try to push on you. The ‘magic of compounding profits’
There’s an old maths riddle: How big would a sheet of newspaper be if you could fold it in half fifty times?
The answer is that it would be so thick, it would stretch into the sky, reach past the moon, and keep shooting up for hundreds of miles more.
It sounds ridiculous, but consider that a sheet of newspaper is .5 millimetres thick. Times two, that’s one millimetre. Times two again, that’s 2, times two again, it’s 4, then 8, then 16, then 32, then 64, then 128, then 256, then 512, then 1,024, 2,048, 4,096, 9,992, now we’re at nearly twenty thousand millimetres thick, and we’ve only folded the paper around fifteen times. Fold it in half five more times and we’re at nearly half a million millimetres thick, fold it in half five more times, we’re somewhere in the area of sixteen million millimetres thick, or sixteen miles, sixteen miles times 2, five times over, that’s about four hundred miles, and we’ve only folded this piece of paper in half around thirty times, twenty times more, and you get more than a million miles in thickness. Feel free to verify this for yourself with a calculator. Or better yet, take a piece of paper and see how many times you can fold it in half. Maybe seven times.
So, just as the number of times you can fold a piece of paper in half leads to some amazing conclusions in theory but is limited in reality, so it goes with compounding profits with sports arbitrage.
You are not going to turn GBP5000 trading capital into billions after 50 trades!! You’ll almost certainly be able to increase it to GBP7,500 within a month if you take advantage of the various bookmaker bonuses available. Beyond that, you’ll definitely be able to increase it by around GBP500 a month. And, as your capital grows, so too will your profits. But not exponentially.
As a proficient sports arbitrage trader, a realistic profit target is 8% – 12% per month. Trade with capital of £10,000 and expect to make about £800 per month. Trade with capital of £25,000 and you should make at least £2000 each month.
The difference with sports arbitrage trading is that, unlike with stocks, real estate, or virtually any other type of investment, you don’t lose a single penny to taxes.
Sports arbitrage trading is not a get rich quick scheme, but it can be a great way to make a comfortable living while working from home and paying zero taxes. You only make a modest return per bet, in terms of percentage. However, by capitalizing on these safe investments continuously and repeatedly, the outcome at the end of each month will be a very positive cash-flow.
As they say, Rome was not built in a day. When you’re first starting out, you should be realistic with your expectations. You’re not going to make a killing the first time out. Rather, what you can most definitely expect is a return that you can be comfortable with, enough of a profit to get you on the right track, and to give you something to invest into further arbitrage bets.
What it really takes is finding the right bets, which can be made easy with the right arb trading software, and placing a lot of them. You should allow yourself a 4-6 week training period, during which you focus primarily on learning. Trading with very small stakes during this period will pay immense dividends later on as you will have built a wealth of personal experience at almost no cost. Even with the right software and services, it takes some degree of personal experience with arb trading before you can really expect to trade quickly and accurately.