Guide to Tax on Gambling Winnings

Background of UK Gambling Taxes

Betting has a long history in Europe, and the UK is one of the foremost countries in this field. However, gambling was not always legal in the UK. It was in 1960 that betting was legalized in the UK with the Betting and Gaming Act.

Until the 2005 Gambling Act, bookmakers in the UK had to pay a 15% tax on their gross profits, and punters did not have to pay anything. This taxation was imposed on a ‘point of supply’ basis. That meant bookmakers who had headquarters offshore did not have to pay taxes. As a result, we still see many bookmakers based out of Malta, Gibraltar, and the Isle of Man. In Gibraltar, for example, bookmakers only had to pay 1% tax on their gross profits. However, the 2005 Gambling Act changed this.

Since 2005, all bookmakers must obtain the UK Gambling Association's license to operate in the country. That means even bookmakers based out of Gibraltar or Malta now have to pay 15% tax on their gross profit. The new taxation was done on a 'point of consumption' basis. As a result, the gambling market in the UK is now much more competitive. They can now compete against online bookmakers from around the world.

What is the definition of gambling winnings?

Any money won from betting, be it from casino sites, raffles, lotteries, horse and dog racing, lotto, baccarat, wagering pools, or contests, is considered gambling revenue. Gambling income also includes the full market value of quasi-cash winnings such as vehicles or vacations.

As you can see from the definition, anything that you win from gambling, online or offline, is a part of your gambling income. For UK residents, this does not mean a lot from a tax perspective. But it's very important to keep note of how much you win in other countries.

Do you pay taxes on gambling winnings in the UK?

Luckily for UK residents, they do not have to pay any taxes on gambling winnings. This rule generally applies to situations when you are gambling in some other country. If the country has a treaty with the UK, you can safely get away without paying any additional taxes.

Players in the UK do not have to pay any taxes because the government charges tax from bookmakers at a rate of 15% on their gross profits. The casinos and bookmakers already pay the taxes under various headers, and as a result, we do not have to pay anything.

Taxing gambling winnings can become very complicated once you start accounting for losses incurred while betting. Since more people lose than win in bets, it can prove to be a huge problem for tax collectors. Taxing the casinos and bookmakers is a much simpler solution compared to taxing individual punters.

Do professional gamblers pay taxes?

There are several questions among the majority of punters or occasional casino users about professional gambling. If a person earns their entire living or most of it from gambling, it can be argued with merit that gambling is their trade. While there is logic in this argument, the HMRC and several court orders have clarified that gamblers won't be taxed for their winnings in the UK. That definition includes professional gamblers, and as a result, they do not pay any taxes even if they earn all their money from gambling.

Do you have to declare gambling winnings to HMRC?

No, you do not have to declare gambling winnings to HMRC. Since you are not taxed on your gambling winnings, there is no requirement to declare gambling winnings to HMRC. In the history of the UK, gambling winning has never been taxed on an individual basis. Instead, the casinos and bookmakers have to pay a flat gross revenue percentage as tax.

Why are gambling winnings not taxed in the UK?

There are two possible justifications for the UK gambling taxation position. One, taxing the bookmakers is a much simpler endeavor from an accounting point of view. If every gambler declares their earnings and losses to HMRC, it will become a long-drawn and inefficient taxation process. The other reason behind not recognizing gambling as a profession is to ensure that banks do not have to give out unsecured loans. Since gambling is a steady source of income by nature, it is not reliable enough for financial institutions.

In several other countries, gambling income is taxable income for the individual. In many countries outside Europe, a large part of gambling is illegal, so there is no question of taxation there. Fortunately, the UK legalized gambling long ago and now it is one of the booming industries in the country. Adding a tax percentage to gambling winnings will stifle one sector of growth and promote illegal gambling.

Is there a tax on horse racing bets?

No, MHRC does not regard horse racing bets as a taxable activity. There is no exception to horse racing bets. Like all other forms of betting markets, horse racing is exempt from taxation. You, as a customer, do not have to pay any taxes.

Do online betting sites track how much you win?

The answer is this question varies from one bookmaker to another. But in the majority of well-known online sports betting platforms, tracking user activity is very common. There is a marketing angle to it as well since bookmakers also want to give you offers that will excite you. As a consequence of it, betting sides often keep a track of how much you win, lose, deposit, and withdraw.

You can find a detailed declaration of what your bookmaker tracks from the terms and conditions of the online betting site. But realistically, very few, if not none, people go through the terms and conditions page by page. As a general rule of using the internet, ensure that you do not give away more information than you need you. Online sports betting sites in the UK are safe since they have to go through the due governmental procedures.