Does the UK have a tax on gambling that impacts winnings attained by individual players? If you are an online gaming aficionado, you will be happy to know that your casino winnings are tax exempt. Ever since Gordon Brown made amendments to the laws regarding tax on gambling in 2001, gamblers in the UK have not had to pay tax on their winnings. The onus of taxation rests firmly on the shoulders of the bookie and not the punter.
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Are Gambling Winnings Tax Free in the UK?
If you are a UK citizen residing in the UK, any winnings you make are completely tax free. This includes winnings made from sports betting, games of chance, poker tournaments, bingo and the lottery. It also includes both land-based and remote betting. It doesn’t a make difference whether you win £10 or £10,000 – it’s tax free, which means you’re free to spend every single penny of it in whatever way makes you happy. UK players are also exempt from paying tax on betting. This means that bookies can no longer charge punters a tax on top of their wager. A common practice that was established by bookies after the 1960 Gambling Act imposed a 9% tax on high-street betting shops.
How the Government Benefits from Your Winnings
You may be surprised, or somewhat astounded, by the fact that the UK government is letting you walk away with your winnings scot-free, but you can rest assured that the treasury is still benefiting from your gambling habits. The simple truth of the matter is that the UK government realised that it would be a whole lot more beneficial to tax the bookie, because the bookie is most certainly making more money that the casual gambler.
The other reason the UK government does not charge gambling winnings tax is because it does not consider gambling a trade. If the UK government treated gambling as a form of trade, and therefore a taxable income, then punters would be able to claim losses in their tax return. As you can imagine, this would lead to the mother of all headaches for the tax man.
Tax on Gambling Operators Boost the Economy
The UK gambling industry’s gross gambling yield, or GGY, for the 2017/2018 was roughly £14bn. The tax on gambling establishments is now set at a minimum of 15% up £2,370,500. It increases incrementally – 20%, 30%, 40% and 50% – according to the amount of profit generated. This should make it clear as to why the government now focuses on the bookie rather than someone who makes a measly £20 from a lucky wager.
It could be said that taxing online casinos and betting sites in the UK is a no brainer, however; it has actually taken a long time to get to this point. Historically, gambling has been seen by those in power as something to be quelled rather than profited from. To this day there are those who consider gambling to be morally suspect; a road to ruin and criminality.
Legitimising the industry was the result of progressive thinking on the part of men like Gordon Brown, but it was also due to the collective fatigue of fighting against the tide for too long. Whether you approve of the pastime or not, gambling is ingrained in the human psyche; we just love the thrill of the chase.
1982’s Gaming Act
The Gaming Act of 1892 established the Totalisator board, or TOTE. This made it legal for people to place bets at a racecourse or dog track and stated that only bookies physically present at the site of the racecourse or dog track could take the bet. Anyone engaging in gambling outside of these parameters was doing so illegally. But as we’ve already stated, people love to gamble and so the laws stating where and when they could do so were simply ignored.
Gambling became part of the murky underworld and made the fortune of many an unscrupulous bookmaker. By 1960, it had become clear that not only was it near impossible to stop people from gambling illegally but that the government was losing out on a lucrative source of tax revenue.
The 1960 Gaming Act aimed to address this by allowing licenced and regulated high-street betting shops to open their doors to the general public. Through the 1960 Gambling Act, the government introduced a 6.5% tax on betting. The bookies passed this tax on to the punter by charging them a 9% tax on top of their bet or by taking 9% of their winnings.
The Gambling Act
The 1960 Gambling Act helped to remove the powerful grip that illegal bookmakers had on society and it did much to remove the stigma associated with gambling. However, the advent of remote betting and the rise of online casinos soon made this Gaming Act redundant. Betting companies soon saw the benefit of moving their enterprises offshore to countries that offered tax free gambling. A company could, for example, base themselves in Gibraltar while still catering to punters residing in the UK. The move would give them an edge over UK-based betting companies because they no longer had to charge them a tax on gambling. It wasn’t long before the UK government realised that changes to the Gambling Act were long overdue.
2001 – Tax on Gambling Winnings is Lifted
In 2001, Gordon Brown announced that UK players would no longer be charged tax on gambling and betting, neither would they be charged a tax on any winnings. Instead, the government would charge a 15% point of supply tax on the gross profits of every casino, bookie and remote betting enterprise. While this was a win for UK players, it didn’t fully address the problem of offshore betting companies. These companies remained under the jurisdiction of the countries in which they were based and, therefore, only beholden to the tax laws of said country.
While the 2001 gambling law made offshore companies less enticing to UK players because they no longer had the competitive edge regarding tax-free play, it did nothing to stem the flow of online gaming companies leaving the UK. In fact, it actually inspired more companies to make the move. The tax on gambling-related activities in Gibraltar, for example, was fixed at 1%. Land-based bookies, such as Coral, kept their high-street business in the UK and paid UK tax but moved their online operations to more tax-friendly locations.
The 2005 Amendment
The 1960 Gambling Act was duly amended to reflect the change in taxation. It became the 2005 Gambling Act and featured legislation pertaining to the burgeoning remote sector. The 2005 Gambling Act saw the introduction of a new government entity charged with overseeing the UK’s growing gambling industry: the UK Gambling Commission (UKGC). The UKGC was charged with ensuring that all UK gambling establishments complied with the rules, gambling tax and regulations set forth in the Act.
The focus of the UKGC was to protect vulnerable members of society, such as children and addicts, from being targeted and exploited; to ensure fair game play; to prevent crime and criminal behaviour in the context of gambling. With the UKGC in place, the next step for the government was to use it to bring all the UK gambling establishments under one roof, so to speak, including the remote sector.
Point of Consumption Tax
In 2014, with the boom of online casinos in full swing, the UK amended the Act once again. Rather than charge tax on point of supply, the UK now charges 15% (up to 50%) tax on point of consumption. This seemingly small change to the legislation is responsible for turning the gambling industry into one of the UK’s most successful and profitable industries, and one of the biggest contributors keeping the UK’s economy afloat.
Here’s why: The problem with gambling tax on point of supply was that it allowed betting companies to base themselves abroad while still catering to a UK-based customer. In other words, a gambling company based in Gibraltar could make money from UK customers without having to pay UK tax. By changing to point of consumption, the UK government can now tax companies on the money they make from UK players. Betting companies are now only allowed access to UK players if said companies hold a licence from the UKGC. Failure to pay point of consumption tax results in the loss of the UKGC licence.
The 2018 Amendment
In 2018, yet another amendment was made to the Gambling Act. As of October 2019, remote betting companies have to pay 21% tax on point of consumption on all games of chance. Again, it is the betting company and not the player that has to pay tax on gambling, but unfortunately, players might still feel the effects of this change. Online casinos are likely to offer more unfavourable odds and slot game players may see a notable lowering of return to player rates.
This move comes on the back of pressure by anti-gambling groups to place tighter controls on the gambling industry. 2019 also saw a £2 limit imposed of fixed odds betting terminals in a bid to stop players from over-spending and, therefore, curb losses.
The Final Word
The calls for tighter controls are certainly getting louder and the UK government has already implemented a number of changes aimed specifically at protecting minors and gambling addicts. Online casinos and sportsbooks, for example, will no longer be able to run advertisements during sporting events and football teams will remove gambling related sponsors from their kits. However, one thing that is unlikely to change is the tax situation for players. Gambling remains tax free for players and in our opinion, it is going to stay that way for the foreseeable future.
FAQ
Do professional gamblers have to pay tax on their winnings?
No. Professional players do not have to pay tax on their winnings. Gambling in this context is still considered a habit and not a trade. If they were required to pay tax on their winnings, they would be able to claim back a percentage of their losses and this simply wouldn’t work. However, if a professional player is paid to attend a tournament or make an appearance at an event, they would be liable to pay tax on their earnings.
Do I have to declare my winnings on my tax return?
It is not mandatory to declare your winnings, however; we recommend that you do declare your winnings if the amount is substantial. The reason being that should you wish to make a large purchase, such as a car or house, you will be required to prove that the money you are using has been legally obtained.
Will my winnings be subject to inheritance tax?
Inheritance tax in the UK is imposed on any amount exceeding £325,000 (at the time of writing). Your winnings will be considered as part of your estate and therefore taxed accordingly. It is possible to give your winnings to a loved one as a gift, but if you should die within seven years of giving a large amount gift, it will be subject to inheritance tax.
Are the winnings from all casino games tax free?
Yes. Any and all winnings from any gambling game is tax free. However, the casinos may try to recoup their losses from taxation by offering low odds and high wagering requirements. It’s a good idea to shop around before settling on an online casino or sportsbook.
What if I invest my winnings; will I be taxed on the money made from my investment?
Yes. Once you have invested your winnings into a new venture, any money earned from said investment will be subject to taxation. This includes buying and selling houses – you will be subject to capital gains tax even if you buy the house with your winnings.
Do I have to pay tax on gambling if I reside outside of the UK?
It depends on where you live and whether or not that country imposes a tax on winnings. The following countries do not tax winnings: Malta, Canada, Belgium, Germany, Austria, Denmark, Bulgaria, Sweden, Australia and Italy.
01/12/2020