Please note that this is a general summary of taxation of CFDs in the UK at the time of writing, tax laws are complex and can change, so please take professional advice. In general, contracts for difference are taxed, in the UK, in the same way as any derivative, and in much the same way as any security.
Capital gains tax
Contracts for difference are subject to capital gains tax in the UK. Losses on CFDs may be used to offset gains made elsewhere.
The profits (and losses) from CFDs, in the hands of individuals, are usually treated as capital gains and losses, however, it is possible for that sufficiently regular trading, especially if it is one's main source of income, may be considered carrying on a trade, and therefore the profits will be subject to income tax.
The taxes on CFDs held by companies is too complex to deal with here, but it is worth noting that the treatment in the UK is the same as for other derivatives. One key difference between derivatives and other financial securities is that derivatives are often affected by special rules regarding hedging, which aim to make the losses and gains on the hedge consistent with the treatment of what is being hedged.
Like spread bets, CFDs escape stamp duty and stamp duty reserve tax.