Are my bet winnings taxable?
There are only two certainties; death and taxes. That saying might hold for the majority of life, but when it comes to gambling and bet winnings, we get a little reprieve, at least in the United Kingdom.
No tax on gambling winnings in the UK
Ever since 2001, punters have been exempt from paying tax on winnings. Prior to this, and ever since the legalisation of betting shops in 1961, they had to choose to either pay 9% of their stake or their winnings to the taxman. The advent of online and remote betting in the early years of the millennium changed that. With the flight of betting firms to tax havens, and still being able to serve British customers with new technology, these firms were able to limit their tax liabilities in the UK. They could limit their exposure to a 15% tax on their profits. This led to a further change in 2014, when a 15% levy on the profits on UK-based gamblers to increase the amount of revenue that the Exchequer got from an industry that took in around £14.3bn in 2019. Minor changes to this have been seen since its introduction, including boosting the tax rate to 21% under Chancellor Philip Hammond in 2019, but the broad strokes of the policy remain the same.
That means that UK punters don’t have to pay out some of their winnings to the government. But the cost of the tax to gambling firms is still represented in the odds that they give. The money flowing to the government still comes from the customer, though in a roundabout way. They still pay, it just means that winners are essentially subsidised by losers.
Professional gamblers can enjoy all the money they make, and don’t have to pay a penny to HMRC. Spread betting is likewise exempt from British taxes. Though if this is a person’s main income, a so-called subsistence income, then taxes may still have to be paid.
The government still makes money from people’s winnings too. These taxes are just what everyone else pays. VAT is still charged, at 20% for most goods and services, while capital gains tax or stamp duty are paid if winnings are invested in the stock or property markets.
This also means that the second part of that old saying above, the ‘death’ part of ‘death and taxes’ still applies. A big win, say backing Leicester to win the Premier League at 5000-1 odds in 2016, could produce generational wealth, with money passed down to children and grandchildren. Any cash passed on this way is subject to inheritance tax, with everything over £325,000 taxed at 40%.
A big win may also prompt gamblers to give out gifts to friends and family. Passing money along in this way does not usually incur a tax hit. However, any gifts over £3,000 will be taxed, and may form part of an inheritance in the view of the taxman if the benefactor dies with 7 years of the gift.
Why it works this way
The rational for making gambling winnings tax-free is one based on making money easier to collect, as well as fairer. If winnings were taxed then punters would search out ways to limit their exposure. By insisting that it is paid by firms wishing to operate in a highly regulated industry, the government can ensure greater compliance. They also just have to look a firm’s books, rather than betting slips of every punter that comes through the door or goes online. It makes above board and legal gambling operations more appealing. This limits the market for black market gambling and bookies. This means that gambling awareness and harm reduction campaigns can be more effective.
It is also fairer. If someone made all their money from gambling, essentially being a business that can identify bad odds from bookies, and that income were taxed, losses on gambling could give a tax break.
If people do make their subsistence income from money they win betting on horses, dogs or football matches, it may attract the attention of HMRC. This government body, tasked with collecting taxes from businesses and individuals, may want to take a closer look at the professional gambler’s accounts, just to make sure they are not doing any work that should be taxed. A clear history of winnings, in documents provided by online gambling firms or winning slips, should be enough to clear this up. If you make a substantial part of your income from betting, it is better to be safe than sorry and keep a record of the money you make. This way, if the taxman does pay you a visit, it will be a short and painless one.
Winning money abroad may not be tax free. A trip to Las Vegas may be enriching, but some of that money may have to be paid to the government. Casinos typically take care of this themselves. All the money the punter gets, they keep. But there will be a 30% withholding tax of 30% on winnings a non-US resident gets. This doesn’t apply to card or table games, as casinos don’t know how much you started with and therefore can’t calculate your taxable gains. Games such as poker, blackjack and baccarat fall under this category so may be more appealing that gambling on sports or slot machines in the US. Other jurisdictions, like popular gambling destinations Hong Kong and Macau, will have their own laws and regulations. Betting firms and casinos want to make it as easy for customers as possible and keep on the good side of regulators, so will help make sure that all winnings are taxed at the appropriate rate.
It is good news for British punters. While most money we make during our lives is taxed, gambling winnings aren’t. The tax hit to bookmakers will still be part of the odds and returns to customers calculations, so it is a background tax, not really felt by customers. So, you can enjoy all your winnings with peace of mind.
Carl Hughes - Editor
Carl Hughes is a leading expert on sports and casino betting. Carl began his career with a BSc in Sport, Exercise and Health Sciences from the University of Birmingham before working within the industry for some of the bigger names (GVC and Bet365) and has been praised as being "a leading sports betting commentator".