Suppose I make an instant gain on an arbitrage trade. This is instant profit, so to speak, so technically there is no capital gains made. Do I pay CGT or income tax on the profit?
I'm inclined to think this comes under income tax rather than CGT, since there is no gain over time. The profit is instant.
According to the general introduction to the HMRC manual on CGT:
Chargeable gains accrue on the disposal of assets.
There's a bunch of other material but none of it seems to put any qualification on timing. If you carried out an arbitrage you must have bought and sold one or more assets. So by that definition it seems like your profit is a capital gain, not income.
Elsewhere, in the different context of gambling, I've seen statements that benefits from an activity can become income if doing that activity as a trade, though what that means is not well defined: https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim22015
The same logic could concievably apply in your case if you are doing this often enough to constitute a main or significant source of income.
