Does Uk Tax Gambling Winnings
The high rollers among you will of course already be aware that your gambling winnings aren’t taxable in the UK. To be fair, even the smaller stakes players know this. Here, we have a system in that we do not have to pay taxes on any of your winnings or stakes. That’s right, 0% of your gambling winnings are counted as taxable income in the UK! It may seem a bit too good to be true – after all when does the Government turn down an opportunity to take a little extra tax? It is completely true though; the tax burden from gambling is shouldered by the operators, rather than the players. The Highs and Lows: Gambling Winnings Tax. There is a huge disparity in the quantity of tax collected across legal gambling jurisdictions. In some countries, punters can expect to lose up to 10% of their winnings to the taxman, whereas in other countries this can be between 1-3%. If your estate exceeds £325,000 the winnings would be liable to inheritance tax and you can only give £3000 pounds to any one-person tax free each year. Do I need to declare winnings. Thankfully, lucky punters in the United Kingdom are not required to declare their gambling winnings for tax purposes.
Those who gamble, especially those who are very new to it or, conversely, those that do it an awful lot, often wonder if there are any tax implications involved with gambling. The short, simple and wonderfully sweet answer is that no, there is no tax at all to pay on either gambling winnings or stakes in the UK (if you are not based in the UK please check your local jurisdiction).
This was not always the case, you might be unsurprised to hear, as the government is never one to miss a chance to squeeze an extra few quid out of us when they can. Betting shops were legalised as part of the liberal mood that swept the country during the 1960s but a tax was levied, either on the stake or winnings (as decided by the punter prior to bet placement). This was charged at 9% but was abolished by Gordon Brown in the March budget of 2001, with the changes coming into effect on January 1st 2002.
Taxing Offshore Betting Sites
The then Chancellor was concerned that the country was losing revenue – not to mention jobs – to offshore gambling sites which people could access via their phones or the internet. Many of the big UK brands had moved offshore where they could take bets without the punters being taxed and Brown’s move was designed to stop that. The tax on the gambler was replaced with a 15% levy on the gross profits of bookmakers and since that momentous day over 10 years ago there has been no tax at all for punters to pay no matter how much they win from gambling.
This has had many ramifications and one is the growth of financial betting as an alternative to conventional investment mechanisms, the former offering tax free winnings, the latter subject to standard tax laws. It has also made UK-based bookies and betting shops far more competitive and has been instrumental in the growth and success of the UK gambling industry.
Follow up legislation further strengthened the domestic market by levying the same 15% tax that UK-based companies face against those based offshore. Remote gambling operators with UK customers currently benefitting from their bases in offshore havens such as Gibraltar and the Isle of Man now have to pay 15% tax on their operating profits. It was estimated to raise around £300m annually for the government and came into force in December 2014.
FOBT’s Stakes Down, Online Taxes Increase to 21%
In 2019, and after a long drawn out battle in both the media and houses of commons, the maximum stake permitted on Fixed Odds Betting Terminals found in high street bookmakers was reduced to £2 – a huge cut when you consider the fact that the previous limit had been £100.
Whilst the cut in stake was primarily intended to help protect vunerable and problem gamblers it also had the knock on effect of reducing the tax revenue generated by the machines. To compensate for this the UK Government chose to increase the 15% tax rate to a whopping 21%.
Despite the increase, crucially, this has no real impact on us as punters. To go back to the very simple answer as the beginning of this piece – gambling profits and stakes in the UK are still totally tax free.
The online casino industry in the UK has an interesting tax history akin to a game of cat and mouse in many ways, with the government attempting to corner the industry and the gambling companies doing their best to wriggle out of a tight spot.
Most players would not pay this any mind, and rightly so, gambling is supposed to be fun and tax is anything but, however, when it has an impact on a gambler’s winnings, they are much more likely to prick up their ears.
Many people aren’t even aware of their tax situation if they win big on a jackpot or they have a big day on the live casino, so when it happens they are unsure of what to do.
Of course, they don’t really have to do anything, but knowing how the tax situation affects the games that you play is still a good idea.
Is Gambling Taxable in the UK?
First and foremost, gambling is classed as tax free in the UK for consumers (players and bettors), however, players in other countries such as France, the USA, and Macau may have to comply with taxes that are in the region of between 1% and 25%. In the UK though, players are able to keep all of their winnings for themselves and there is no legal obligation to declare them – but this wasn’t always the case.
From 1961 up until 2001, gambling was taxable in the UK in the form of a 6.75% ‘levy’ charged to operators, who then passed it on to bettors but upped it to 9%. Punters could choose to pay on either their stake or on their winnings, but obviously the tax on the stake was a lot less than it would be on any potential winnings, so most people chose this option.
Then, in 2001, the law changed to combat the increasing number of businesses relocating offshore to avoid UK tax, with a 15% tax on gross profits at the point of supply. Back in 2001 this made more sense than it may do now. Online gambling was in its infancy, so most bookmakers and casinos point of the supply was the UK high street. This also meant that punters could now gamble tax free for the first time since high street gambling was legalised in 1961.
However, as we know, online gambling took off in a big way and operators’ online income grew exponentially in comparison to their high street efforts. This actually led to even more businesses relocating offshore as well as many new online only businesses establishing themselves in these tax havens from the get go. Those with both online and high street retail outlets began to split their businesses in two, basing online revenue creating business offshore and leaving the high street part based in the UK.
This new problem resulted in an amendment to the 2005 Gambling Act, which came into force in 2014.
Point of Consumption Tax in the UK Gambling Industry
The inclusion of the Point Of Consumption Tax (POCT) in the 2005 Gambling Act made it very difficult for companies wanting to operate in the UK to avoid tax in the same way as they had done before.
The UK Government had noticed a significant decrease in tax paid from gambling companies despite to boom in the online gambling industry. All of these companies trading in the UK were based in tax havens where they paid a pittance in tax, none of which ended up in the UK Governments coffers.
The amendment meant that operators would pay the 15% tax at the point of consumption rather than the point of supply. Basically, this meant that if they had UK customers, they paid UK tax on income from those customers. The same rule applied to genuinely foreign companies wanting to trade here, as opposed to UK companies with an official offshore base.
Between 2017 and 2018, the UK government - HMRC made £2.9 billion from gambling businesses alone, so it was a huge win for them, and that was before the rate was bumped to 21% on games of chance. This new tax rate came in during 2019, making the UK a much more hostile environment for gambling companies.
Impact of the UK Point of Consumption Tax
There was not much of a noticeable impact on the gambling industry following the introduction of POCT. In fact, there is every chance that the shrewdest operators and executives would have been expecting this to happen at some point and had a strategy in place plus cash reserves to help them through any reactionary bear market.
In an attempt to offset some of the downside, online casinos started to provide more games with a lower RTP (Return To Player) rate, which means that theoretically, they do not pay out as often. Furthermore, there were fewer generous promotions all of a sudden, with ‘non-deposit bonuses’ virtually disappearing from the majority of online casinos. Apart from that though, it was business as usual.
Interestingly, this also came at a time when the ASA (Advertising Standards Authority) were really starting to clamp down on what gambling companies were allowed to do from a marketing perspective. This included not being able to advertise on television before a 21:00 BST/GMT watershed in order to combat underage gambling. They also had to be very careful with the wording of their adverts and terms/conditions to make sure that it wasn’t in any way misleading or even duplicitous.
The best online casinos and bookmakers responded to the changes by creating even more innovative markets and products that would attract the players they needed to increase revenues. These included initiatives like new betting markets, betting tools, and new game genres.
Do Professional Gamblers Pay Tax on Their Winnings?
Interestingly, the UK Government does not see a distinction between professional and non-professional gamblers, so the pros do not get taxed on their winnings.
Considering that they do this as their full time occupation this might seem unfair, however, with HMRC not currently recognising gambling as a trade (and it’s not really, is it?) this is unlikely to change.
That said, if you are of UK national but you gamble outside of the UK (if you were a professional poker player for instance), there is every chance that you could well be subject to local tax laws, so do your research if this sounds like you.
These players more than likely have an accountant who they employ to look into areas where they can save on paying tax, for example, any winnings in another country might not be taxable if the player was only there for a certain period of time, or if they were playing in a tax haven.
When to Declare Winnings from Gambling
As you now know, there is no obligation to let HMRC know if you have a windfall at your favourite casino or online casino.
There are, however, instances where it is advisable to think about declaring any winnings from your gambling activities anyway.
One of the biggest incidences is if you win a substantial amount of money because this will help to provide proof of your funds in case you are audited, investigated or you need to use it as collateral to get a loan to buy something, such as bricks and mortar real estate.
In addition to this, if you use your winnings as a gift to someone else, this may be subject to tax depending on the threshold percentage, and they may want to look into where it has come from.
None of this can get you in trouble, it’s just about acting early to save potential issues later on that could slow things down for you.
UK Gambling Tax Changes in the Future
In recent years, there has been a major campaign promoting Responsible due to increased media attention on players who suffer from gambling. This has put a lot of pressure on operators to do more and many of them are working hard to shrug off the slightly murky reputation gambling has with some people, and give the industry a new responsible and moral face.
A recent law that was passed banning UK casinos from accepting credit card deposits went hand in hand with this, as did the reduction of maximum stakes on FOBT’s in bookmakers shops.
This will ultimately cost the gambling operators money both in increased costs and lost revenue, and with the 21% POCT as well as heavy regulation that is already in place and the costs associated with that, it’s unlikely that more tax changes will occur in the imminent future.
The government need the tax income they get from the gambling industry, and will be wary of making the terrain so hostile that these companies simply stop trading here. This has already been happening, with several big betting companies, Betsson among the, all but abandoning the UK for greener pastures elsewhere.
It’s a balancing act; the companies need to be profitable and be given room to grow while at the same time operating fairly and contributing their fair share to the economy. The balance is pretty good at the moment so tax changes would be surprising, although further regulation would not.
Does Uk Tax Gambling Winnings Losses
One suggestion has been that professional gamblers earning over a certain amount per year might be taxed, but the amount of work it would take to get this up and running would likely not be worth the returns given the relatively low number of professional gamblers earning enough to be taxed on.