If you've ever won a jackpot through bingo, slots or the lottery, you might have wondered if your winnings are taxable...
Back in a day, UK punters did pay taxes on their gambling winnings. Those taxes were abolished in 2001 when Gordon Brown was Chancellor of the Exchequer. The Gambling Act of 2005 set up the legal frame for gambling in the UK. For the first time in history, it also regulated internet gambling. Gambling was legalised in the UK in 1968 with the introduction of the Gambling Act. In 2005, the act was amended to include regional and online casinos. Casino operators pay 2.5-40% of their gross gaming revenue. Online gambling. So you might be wondering, do I have to pay tax on my online gambling winnings? This will depend on your location. I'll cut right to the chase: yes, you do need to pay federal taxes on gambling winnings in the United States. This is especially true when you net a big win and receive a W-2G form. According to the IRS, a gambling establishment should issue a W-2G when you win an amount that's subject to federal income tax withholding (24% of win).
If you find yourself lucky enough to win big, do you have to declare it and pay taxes? If that thought has ever crossed your mind, you're in luck because BingoPort has you covered. We've put together a guide that will answer whether your winnings really are taxable, a brief history of gambling laws and a look at how this might impact you.
So, if you've bagged yourself a big jackpot, congratulations! If you're just here for the information, don't worry—we're sure your time will come someday.
Are Bingo Winnings Taxable?
Also, in the UK money from spread betting is considered gambling; if I maintain a UK spread-bet account will I have to pay Swiss taxes on this? Thanks in advance.
The short answer is no—your gambling winnings aren't taxable, at least in the UK. Here you won't have to pay taxes on any of your winnings or stakes. It doesn't matter if you've won £100 or £1 million. This applies to all types of gambling—from bingo, to slots, to lotteries, and even horse racing. So if you win big, you can rest assured knowing that you can spend your money in whatever way you'd like.
Depending on the site you're using, your winnings will either be paid to you in one lump sum, or as a certain amount each month. If you've won recently, or you frequent a particular site, casino or betting brand, you should check their Terms and Conditions—this will lay out everything you need to know should your lucky day come.
If you don't live in the UK your winnings might be subject to a tax, so it's important that you check in advance. For example:
- France has a 2% tax on poker cash pots.
- In Spain, you need to declare winnings as income for taxation.
- The Netherlands has a 29% tax if you win more than €454 in the lottery.
If you're a UK citizen and you find yourself gambling abroad, you generally won't need to worry about taxes. Most countries have treaties with the UK, so you won't be subject to their tax requirements.
Gambling wasn't always tax-free however—check out the section below for a summary of the history of gambling and taxes in the UK.
History of Gambling Laws
Does Uk Tax Gambling Winnings Losses
Betting shows were first legalised with the 1960 Betting and Gaming Act, in which a tax was levied either on stakes or winnings in high street betting shops. This was charged at a whopping 9% for punters. It was abolished by Gordon Brown in his March budget of 2001.
This tax on gamblers themselves was replaced with a 15% tax on bookmakers and their gross profits at point of supply instead. This ‘point of supply' basis meant that if a bookmaker wasn't based in the UK, they weren't liable however. This was a pressing concern for Brown, who feared that the UK was losing revenue to offshore gambling sites.
In fact, more and more bookmakers moved their online operations offshore where they would only have to pay the local tax rate on profits—this was capped at 1% in Gibraltar!
This changed with an amendment to the 2005 Gambling Act in 2014. From this point, the tax was changed to 15% on all gross profits at point of consumption—including offshore companies. This meant that gambling operators in Gibraltar and the Isle of Man for example, were now obliged to pay tax in order to obtain a gambling licence. This amendment essentially made it illegal to operate in the UK without a UK gambling licence.
This had a huge impact in making UK-based bookies and betting shops more competitive—increasing the growth and success of the gambling industry in the UK.
So, Why Aren't They Taxable?
To put it simply, it's just easier for everyone involved to leave winnings untaxed. For example, if people are paying taxes on their winnings just like businesses do, then it would potentially be possible to claim back losses on tax returns. As you can imagine, this would be a nightmare, especially considering the fact that most people lose when it comes to gambling. After all, we all know what the 10 stages of losing at bingo are like!
Who Exactly Pays The Tax?
The casinos and bookmakers are the ones now paying the tax—this is the way they contribute to the UK's economy. There are a variety of different taxes and gambling duties:
- General betting duty
- Bingo duty
- Machine games duty
- Lottery duty
- Gaming duty
- Remote betting duty
Before you start thinking about how tough it must be for gambling businesses, or how great it might be for you, bear in mind that they do pass these costs on to you in some way. For example, some online gambling sites have high wagering requirements or lower odds.
What If You're A Professional Gambler?
When we say ‘professional gambler', we mean someone who essentially uses gambling as their main source of income. But even if this is the case and you are a professional gambler, the answer is still no—your winnings are not taxable.
This is backed up by the HMRC's Business Income Manual at BIM22015. Their position is that betting and gambling don't constitute trading:
'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'.
Gambling winnings, therefore, remain tax-free, regardless of whether it's your main source of income or a simple hobby. An example of this goes back as far as 1925, in which a man named Alexander Graham was taxed by Inland Revenue. Graham made a living out of betting on horses, so Inland Revenue claimed £300 from him under the 1918 Income Tax Act. This case went to court, where Graham's lawyers argued that betting on horses couldn't be considered a trade. The judge eventually ruled that you can't tax 'habit'.
That's not to say that professional gamblers can't ever be subject to tax. It can get a little bit complicated. For example, if a professional gambler is being paid an appearance fee for playing at a particular tournament, then this would be a type of income that would be liable for tax.
So, I Don't Have To Worry At All Then?
While your winnings aren't taxable by any gambling laws, that doesn't mean you don't have to worry. After all, other taxes may still be applicable.
A problem that many lottery winners have is extra tax—particularly on the ‘bigger' wins. Any income that you generate from your winnings could be subject to income tax—for example, income earned through investments would be subject to a capital gains tax at 18%! And that's not all—your winnings might even be liable to an inheritance tax when you die.
An inheritance tax is levied on property or cash acquired by a gift or inheritance. The threshold for this tax is £325,000, so if your ‘estate' is worth more than that, you're looking at a 40% tax. While you can give your money away to people or charities, it's still liable should you die within 7 years of the gift.
You can give away £3,000 each year tax-free to any one person, or £250 as a gift to someone as long as they're not gifted any further. If you give more than this away and you die, it will be liable to this tax. If you live longer than the allotted 7 years, it will be exempt from the inheritance tax.
If you do end up winning big—whether it's through bingo, the lottery or a casino—you should definitely look to a financial advisor for help on how to invest your money and how to protect it.
Before going out to buy your lottery tickets for the week, find out if the lottery is worth playing.
Conclusion
Well, there you have it. If you live in the UK, our tax laws mean that you can gamble tax-free, without a single worry. Generally speaking, it isn't very likely that this will ever change—taxing gambling winnings will never be viable for the UK. After all, if you tax the income or profit made from an activity, you have to make allowances for any losses made from the same activity.
Now you know that, you can keep playing bingo without a care in the world!
Feeling lucky?Why not try one of BingoPort's recommended bingo sites like Gala Bingo?
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.
Does Uk Tax Gambling Winnings 2019
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.
Does Uk Tax Gambling Winnings Money
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.
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.
