Do You Pay Tax On Gambling Winnings?

Tax Free SignA common question that often concerns those people who are new to gambling revolves around tax liabilities and here we take a look at the very simple question of whether or not you must pay tax on gambling winnings. Please note that we are looking here only at people who are resident in the UK for tax purposes. Non-UK citizens or anyone not in the UK should check with the relevant tax authorities wherever they are based and according to the laws of their country of residence.

For many the idea that winnings from gambling could be tax free seems too good to be true but we are happy to report that, quite simply, gambling winnings are indeed tax free in the UK. You may read on various forum posts written by self-proclaimed experts talking of grey areas and posing abstract hypothetical questions but we can categorically and emphatically say that you do not need to pay tax on any profit accrued from gambling. This is true for one-off punters who happen to land a big win, professional gamblers raking in tens of thousands of pounds a year and regular punters who sometimes win and sometimes lose.

History of UK Gambling Taxes

1961 to 2001: 9% Tax on Stake or Winnings

The tax-free status of gambling in the UK has not always been in place, however, and until relatively recently punters did have to pay tax on their bets/winnings. Betting shops were legalised in the UK in the 1960s and from then until 2001 there was a 9% tax levied against bettors. The punter could choose to pay the 9% tax up front based on the stake or, advisable if backing a long odds outsider, opt to pay the tax only if the bet was a winner, but with the 9% being applied to the winnings, rather than the stake.

 Tax Paid On StakeTax Paid On Winnings
Stake £10 £10
Odds 10/1 10/1
Winnings £100 £100
Amount Of Tax Paid 90p £9
Net Returns £109.10 £101.00

2001 to 2014: 15% Tax on Bookmakers Profits

With the advent of online and telephone betting in the mid-1990s onwards, major UK bookies, led by BetVictor, moved offshore to such tax havens as Gibraltar, Malta or the Isle of Man. As the operator was based in these destinations, bets were exempt from UK tax law. As more and more businesses began to work this way, the British government became concerned about the loss of tax revenue – not to mention the loss of jobs – and so then-Chancellor Gordon Brown changed the laws in 2001.

Instead of taxing the gambler, the government instead levied a 15% tax on whatever profits the bookies made, meaning that for almost 15 years winnings from bets have been entirely tax free. Hurrah for that!

However, bookies, just like all other big businesses, are always keen to limit their tax liabilities as much as possible. So ,whilst this move strengthened the hand of UK bookies and high street betting shops (by levelling the playing field as far as punters were concerned), it did little to generate tax revenue from those online betting sites that already had operations based in places such as Gibraltar.

Such bookies claimed their profits were exempt from UK taxes and in the ever-complex world of global tax law they were able to avoid any significant payments to the British exchequer, despite the fact that much of their profits were coming from UK customers.

2014 to Present: Point of Consumption Tax Introduced

In late 2014, with the financial crisis still lingering, the government introduced yet another tax to try and grab a more worthwhile slice of the huge revenues the biggest gambling companies generate. A “point-of-consumption” tax was introduced that meant that the UK government would take 15% of any profits generated from customers based in the UK, even if those bets were technically accepted in such tax havens as have been mentioned.

Point of consumption is a huge issue for governments and businesses around the world and the new tax, whilst hurting the profits of the various UK-facing bookies who still have large offices offshore, is set to yield tax streams that run into the hundreds of millions of pounds for the government.

More importantly, however, at least as far as us winning punters are concerned, it means that winnings from bets remain 100% tax free and look likely to stay that way. Hurrah once more!

Why are Winnings Tax Free?

Some people continue to dispute the simplicity of all this but there is one very good reason why winnings remain tax free: if they weren’t, there would have to be some form of credits system to offset losses. If the government was claiming tax on winnings it would seem unfair if losses couldn’t be offset against this and that system would be far too complex to be workable.

As if things couldn’t be any clearer, the HMRC explicitly states that being a “professional gambler” (let alone a recreational player) does not constitute a trade or job. The HMRC site, citing the legal case of Graham versus Green, states that, “The fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade.”

Might HMRC Query My Income?

Tax Inspector Investigating Document

If you are merely an occasional punter or even a regular gambler who bets on a weekly, or even daily basis, for fun, there is virtually no chance that HMRC will want to know about your gambling. However, for those lucky and skilful enough to make a full- or part-time living from gambling, there is a slight chance that HMRC may take an interest in where your money is coming from.

This has nothing to do with the taxability of winnings and is simply a step to guard against people either doing untaxed work, attempting to launder money or living off what I believe my grandmother might have called “ill-gotten gains”.

If you fall into this fortunate category of being a professional gambler it should be quite easy to satisfy HMRC, especially if the bulk of your gambling is done online. Showing brief details of your bets should be more than enough to satisfy them that all your wonderful gains are “good-gambling-gotten”. And, of course, totally tax free!