Tax On Betting – All You Need To Know

betting and tax

It’s a common question that people ask about gambling in the UK. Do I have to pay tax on my winnings? Are free bets taxable? Do I need to pay tax when I place a bet? As a punter, the answers to these questions are pretty straightforward; there is plenty of misinformation online, which we will address in this article.

In addition, there are complex tax laws on gambling companies which you may be interested in learning about.

It was commonplace for the government to stop illegal gambling by the late 1950s, but it lacked the means and the will to do so. As part of the 1960 Acts of the state, the government licensed off-site betting businesses and instituted a betting levy at the same time, both of which remained in effect until 2001, in the spirit of “if you can’t beat ’em, join ’em.”

This approach led to the government being able to collect taxes on all forms of gambling, both online and offline and betting on mobile devices like smartphones.

Current Gambling Taxation Rules

In the United Kingdom, customers are not required to pay tax on their wagers or any later wins they receive from such wagers. However, when you are not a resident of the UK, you should ask the authorities in your home country if you will be liable to pay taxes on any winnings you take back to your homeland.

In some individuals’ eyes, it might seem odd to the government of the United Kingdom that they are not interested in receiving any revenue from gamblers. However, even though the government will still take their two pounds of flesh, they will now take it directly from bookmakers using a tax at the point of sale.

Initially, in 2001, then again in 2014, and most recently in 2018, tax rules were revised to reflect the changing nature of gambling as it transitioned from land-based casinos to online platforms as a result of the transition.

Consequently, due to these revised rules, it is no longer necessary for the bettor to directly pay a fee; instead, this responsibility has been transferred to the bookmaker in an attempt on the part of the government to raise income from offshore internet operators through taxation.

Although it is very helpful to be aware of this, it is also essential to understand that there are situations in which paying taxes may be necessary. When you bet on indexes and financial markets, for example. In this post, we will cover all you need to know about betting taxes, including whether or not you are required to report wins, what to do if you are a professional gambler, previous laws, the history of the topic, and much more.

Are Free Bets Taxable?

Free bets are not taxable neither are the winnings from free bets. Therefore, they are treated from a taxation point of view like real money bets. You may be surprised to hear that gambling companies must pay tax on these bets as if a punter placed bets with their own money.

This never used to be the case, but as a direct result of this change, the number of no deposit free bets promotions from bookmakers has significantly reduced.

Old Gambling Tax Law

Before the passing of the Betting and Gaming Act of 1960, it was illegal to place cash bets anywhere except on licensed race tracks and racecourses. As a consequence of the Gaming Act of 1892, the Totalisator Board was established, more commonly referred to as the Tote Board.

It was designed to receive bets from punters at race tracks and greyhound races. The law, however, did not allow the board to accept bets from off site unless they were sent through the mail or placed over the telephone.

During these times, quite a few illegal bookmakers were operating, and the massive underground betting market that was developed as a result convinced the government that there was an urgent need for off-site bookmaking, which could be taxed, and that this was critical for the country’s economy. As a result, a law was passed in 1960 which primarily controlled and regulated betting shops on the high streets.

The first stores were allowed to open in 1961, but bookies had to pay a special tax of 6.75 per cent before they could do business in the store. As a result of this practice, bookmakers could charge punters an additional 9% betting tax.

They might have been charged this tax either at the time of placing a wager, or they might have been charged tax on the winnings instead. Both options are available. To avoid the possibility of a significant amount of money being lost to tax charges on winnings, most customers chose to pay the tax on the bet rather than on the profits.

Current Gambling Tax Law

In the early part of the new millennium, the betting landscape was already changing, with an increasing amount of betting taking place through telephone and online betting. By doing this, businesses could move offshore to tax havens like Gibraltar, Malta, or the Cayman Islands, from where they could offer customers tax-free betting services.

One of the first bookmakers to do this was Victor Chandler, now known as BetVictor. In 1998, Victor transferred his business to Gibraltar. This is believed to have been the final straw for Gordon Brown, who, in response to the situation, pushed for a modification of the gambling tax policy.

Since 2001, there has been no betting levy in the United Kingdom. Instead of it, there is a 15% tax imposed on the gross earnings of bookmakers in the United Kingdom at the point of sale. It was a historic day for gamblers in Great Britain, who would be able to wager tax-free regardless of whether or not they won.

Despite this change in legislation, there was still no solution to the ultimate problem, as more and more gambling companies moved their offshore operations. This is because offshore gambling brands were taxed on their profits at the time based on where they were located. This meant they would pay the local tax rate on profits instead of the full UK tax rate. At the time, the tax was known as ‘point of supply’, meaning offshore gambling brands were taxed based on location.

Consequently, not only did the operators that only operated online have to relocate, but larger, more established, high street brands like William Hill also relocated their online operations. Even though the high street firm would remain in the UK and continue to be subject to UK taxation, everything online was tax-free. Over the next decade, as the internet economy continued to grow steadily, this issue became increasingly apparent to the Treasury Department as it started to grow.

As of 2014, the Gambling Act – the tax legislation issued in 2005 – was amended to include a brand-new consumption tax of 15 per cent, which was applied to all gross earnings generated by the gambling industry. As a result of this change, offshore businesses are now required to pay tax to the UK Treasury on the earnings they make from customers situated in the UK.

Unless this is done, the betting firm in the UK will either not be able to get a new gaming licence if they do not apply for one, or they will not be able to get one at all if it does not apply for one. Since holding a license is a legal requirement for providing gambling services in the UK, it is also a legal requirement for all operators to make the appropriate tax payments to do so.

2019 – POC Increased

Online gambling on ‘games of chance’ is now subject to a ‘point of consumption’ tax at a rate of 21%. This is an increase from the previous rate of 15%, which was announced by the chancellor of the United Kingdom, Philip Hammond, in his budget speech in 2018.

As a result, if you are playing casino games, slot machines, table games like blackjack or poker, virtual games, or any other type of game of chance with fixed odds, there are now subject to an additional 6% tax if you operate a casino site located in the UK.

Tax On Professional Gamblers

Professional gamblers and people who make their living from fixed odds gambling are not required to pay any tax on their gains. But, on the other hand, you can’t receive a refund of any taxes you may have paid on your losses attributable to fixed odds gambling.

The winnings you earn may be subject to taxation if you live in a country other than the United Kingdom. This is because you intend to take a substantial portion of them home with you. It may be that you bring the money back into another country after declaring the income taxable or that you declare the tax in another country. It would be wise for you to look into the legislation governing betting taxes in your area. This is because you are uncertain of the gambling tax that applies where you live.

Tax On UK Visitors

There is no requirement for you to pay any money to the government of the UK; however, if you win, you may be required to report your winnings by the rules of your own country.

It should be noted, however, that if your winnings are in the form of physical cash and you are travelling outside the European Union, you will only be permitted to take a maximum of €10,000 (or the equivalent) in cash out of the country at a time.

Taxes On Spread Betting

It is relevant to note that spread betting, index betting, and binary options are not under the jurisdiction of the UK Gambling Commission but are instead governed by the Financial Conduct Authority (FCA), a government agency. As a result, you will not be liable for UK Capital Gains Tax or stamp duty on any wins you get from spread betting. However, you won’t have to pay 18% UK Capital Gains Tax. In addition, when you wager on fixed odds currency and market changes with bookmakers, you do not have to pay tax on the profits.

As an alternative, if you view spread betting as your primary source of income or occupation, you may be required to pay the tax because, in this circumstance, you are essentially being classified as a trader as a result. The other side of the coin is that if you suffered losses, you could deduct them from your taxable income.

The situation is entirely different if you are engaged in stock market trading. This is because this kind of business will be subject to capital gains tax and stamp duty at the maximum rate.

Declaring Your Winnings

This is the quick answer to your question; your wins are not taxable. Therefore, you do not need to report them to the government. In addition, you will not be able to receive any rebate for your losses; consequently, you do not need to disclose them to the government.

Your tax return should be filled out with a designated space for you to state your earnings from gambling. In addition, you must let the Treasury know if you have recently won a significant amount. It is not necessary to pay taxes on your earnings if you do not wish to be audited in the future. However, this information can be helpful if you need to prepare a tax return in the future.

The first thing you can do is keep a record of all your winnings and the receipts associated with those victories. This will serve as proof of how you earned those funds. It is not uncommon for high-value transactions to require a fraud check, and you might be in serious trouble if you cannot provide proof of your money’s origin.

It is not uncommon for the government to require that you provide evidence of the origin of the funds, even if you intend to pay cash for a major purchase (such as a car or a house, for example). As an additional argument in support of restricting wagering to licensed, respectable, tax-paying bookies in the UK, there is yet another compelling argument for doing so.

Giving Gambling Winnings Away

Depending on the size of your estate, if someone inherits your winnings, they may be subject to inheritance tax depending on your winnings. You are free to give your money to individuals or charitable organisations; however, if you pass away within seven years of donating, the money may be subject to inheritance tax, even though you have freely given away your money.

You can make a tax-free gift of up to £3000 every year to a single recipient, or you can make a tax-free gift of up to £250 to as many people as you choose, as long as no single recipient receives more than £250 in a year.

You will be subject to what is known as the taper rule if you give away more than this amount and die within seven years of it. This means you will have to pay a percentage of the tax on the amount you gave away. If you live beyond this point, you will not be subject to inheritance tax on this property.

Gambling Tax Whilst Betting Abroad

When you win a game in a country that taxes gambling profits, you must pay that tax at the point of supply. However, you are exempt from declaring your victory even though you will be required to pay this tax. For example, suppose you are travelling into the EU from a country that is not a member of the European Union and wish to bring any cash into the country, including wins. In that case, you may be restricted to bringing in no more than 10,000 Euros in cash at any given time (or equivalent currency value).

At this point, it is unclear how the impending Brexit will affect one’s ability to bring gambling winnings won in other EU countries into the UK. For further information on this issue, visit our website dedicated specifically to betting while travelling.

Frequently Asked Questions

Who sets the tax rate on betting?

The government sets the tax rate on betting.

Where does the betting tax go?

The tax on betting goes to the government. The government uses the money to pay for things like roads, schools, and national defence. The government also uses the money to help people who are in need.

Final Thoughts

So there you have it; all you need to know about paying taxes on anything you win; we feel like we’ve covered everything, but if there is something you’d like answered, please feel free to get in touch.