A whopping 9% winnings tax was applied on anything won. The Betting and Gaming Duties Act of 1981 did little to change that. It made things easier for high-street bookies to offer services, and effectively outlawed offshore businesses from advertising to UK players, but did nothing to alter the tax laws. Nonprofessional gamblers report winnings as “other income” on line 21 of their tax returns. Gambling losses are deductible only to the extent of gambling winnings and are reported as itemized deductions on Schedule A that are not subject to the 2%-of-adjusted-gross-income threshold; therefore, deductions for gambling losses are not among the miscellaneous itemized deductions suspended. Both cash and the value of prizes are considered “other income” on your Form 1040.If you score big, you might even receive a Form W-2G reporting your winnings. The tax code requires institutions that offer gambling to issue Forms W-2G if you win. $600 or more on a horse race (if the win pays at least 300 times the wager amount). The betting duty that was abolished in 2001 was replaced by a tax rate of 15 percent on gross profits for providers of gambling services. Initially, this tax was charged on the basis of “point of supply.” This means that the tax did not apply to providers of gambling services who were operating from outside the UK.
In short for the customer there is no tax to pay on either bets or any subsequent winnings in the UK. If you are not based in the UK you may be liable for tax in your own jurisdiction if you take any winnings back to that teritory, you are advised to check in advance.
It may seem strange to some people that the UK Government don’t want a slice of the pie from punters. Don't worry the government still get their two pound of flesh they just now take it direct from bookies in the form of point of consumption tax. Tax laws were changed in 2001, again in 2014 and then 2018 to reflect the changing nature of gambling moving progressively from the high street to online. These new laws removed the need for the bettor to directly pay a levy, this was instead shifted to the bookmaker in a move designed by the government to increase tax revenue from online operators based off shore.
Beware however, there are some instances in which tax may need to paid, such as in the case of index and financial betting. In this article we tell you everything you need to know about betting tax, we tell you if you need to declare winnings, what to do if you’re a professional gambler, the old rules, history and more.
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What was the old Gambling Tax Law?
Prior to the 1960 Betting and Gaming Act it was illegal to place cash bets away from licenced race courses and tracks. The 1892 Gaming Act created the Totalisator board, commonly known as the Tote, set up to accept wagers at race courses and greyhound tracks from punters. It was however illegal to take bets off site unless these were made by post or over the phone.
Many illegal bookmakers operated throughout these periods and the large betting black market that ensued showed the government there was a huge demand for off site bookmaking, and crucially this could be taxed. This led to the 1960 Act that principally regulated and licenced high street betting shops.
The first shops opened in 1961 but under the condition that a new levy was to be charged at 6.75% to bookmakers. Bookies passed this on to punters in the form of a 9% betting tax. The tax could either be paid at the time of placing a bet or on the winnings instead. A levy of 9% on winnings can be a lot of money so most people elected to pay the tax on the stake.
What is the current Gambling Tax Law?
By the time of the new millennium the betting landscape was changing with more and more gambling moving towards telephone betting and betting online. This allowed companies to move offshore to tax havens such as Gibraltar, Malta, The Caymans, etc., from where they could allow punters to bet tax free. The earliest and most famous of these migration was the bookmaker named after Victor Chandler, now known as BetVictor. Victor moved his operation to Gibraltar in 1998 and this was said to be the final straw for the then Chancellor Gordon Brown who legislated a change to the gambling tax law.
In 2001 the betting levy was abolished and replaced instead by a 15% tax on bookmakers gross profits in the UK at point of supply. This was a landmark day for punters in Great Britain who could now bet tax free win or lose. However, when you think about it, bookmakers are businesses and therefore you are still paying the tax today, only now it is indirectly passed on to customers in the form of poorer odds and bigger operator margins.
Unfortunately however this new legislation didn't solve the ultimate problem, as more and more betting companies moved their online operations offshore. The tax at the time was 'point of supply' meaning offshore gambling brands were charged tax based on where they were based, meaning they would pay the local tax rate on profits instead of full UK tax. In Gibraltar for example this was capped at 1% or a maximum of £400k.
This didn't just result in the online-only operators to moving abroad it also caused the bigger, older, high street names, such as Coral, to move their online operators abroad too. Effectively keeping the high street business in the UK, with profits liable to UK tax, but moving all of the online profits abroad. As the online industry steadily grew over the subsequent decade this problem became more and more visible to the treasury.
In 2014 an amendment to the 2005 Gambling Act the tax legislation was issues. This contained a new 15% point of consumption tax on all gross profits. This now meant off shore companies were obliged to pay tax on profits earned from UK based customers to the UK treasury. Failure to do so would mean the betting company would not be re-issued with, or could not obtain, a UK gambling licence. As it is a legal requirement to have a licence to offer gambling services in the UK this also means it is a leagal requirement for all operators to pay the tax.
New 21% Point Of Consumption Tax For Remote Gambling in 2019
The UK chancellor, Philip Hammond, announced in his budget in 2018 that the a higher rate 21% point of consumption tax will now be imposed for online gambling on 'games of chance', up from 15%. This means if you play casino games, slots, table games like blackjack, poker, virtual or any other fixed odds game of chance, there will now be a 6% higher tax on the profits made by a casino site operating in the UK.
This will come into effect on the 1st October 2019, at the same time the new £2 limit on FOBT's will come in for high street shops. The main effect customers will notice will be poorer odds and return to player amounts as online gambling companies will largely pass on these costs to the customer. The competitiveness and profitability of the industry however should at least mean some of these costs are borne by the gaming companies at least. We may notice, in combination with Brexit, that more companies may leave the UK market in light of this new higher tax. We will update this section as more information is announced.
Gambling Tax FAQ's
Do Professional Gamblers Pay Tax?
Professional gamblers, or those who live off the proceeds of fixed odds gambling, do not need to pay tax whatsoever on their winnings. Conversely however you of course cannot get a tax refund on your loses either.
If you are a resident in another country, other than the UK, you may be liable to pay tax on your winnings. This could be the case if you either declare tax in another country or you try to take the money back into another territory. Check your local betting tax laws if you are unsure of the gambling tax where you are based.
I'm a visitor to the UK do I have to pay gambling tax?
You do not need to pay a penny to the UK government but depending on the laws in your country you may be liable to declare any winnings.
Beware however should your winnings be in physical cash and you are travelling outside of the EU you are restricted to taking a maximum of €10,000 (or equivalent) in cash out of the country at any one time.
Do I pay tax on Spread Betting?
Spread betting, index betting and binary options are not regulated by the UK Gambling Commission but instead fall under the umbrella of the Financial Conduct Authority (FCA). Despite this you do not need to pay the 18% UK Capital Gains Tax or stamp duty on winnings from Spread Betting. You also do not need to pay tax when betting on fixed odds currency and market fluctuations with bookmakers.
If however you call spread betting your primary source of income, or your day job, you may be liable to pay the tax, effectively you become classed as a trader in this scenario. You would on the other hand be able to write any loses off against tax.
If you trade on the stock markets this is a different story. This form of trading is liable to full capital gains tax and stamp duty.
Do you need to declare winnings to the government?
The short answer is no, your winnings are not taxable so you do not need to declare them. Likewise you won't get any rebate against your loses either so no point in declaring them either.
If you have won a lot of money it helps to declare to the treasury on your tax return. There is a specific box where you can enter gambling winnings. You won't be taxed and this could help in any future investigations if you are audited.
It certainly helps to keep records and receipts of your winnings as proof of how you obtained the cash. Often high value purchases require a fraud check and if you have no proof of where your money came from it can land you in hot water. Even if you want to make a large purchase in cash (a car, a house, etc), then you will need to show where the money came from. Yet another reason to only bet with UK licenced reputable, tax paying, bookmakers.
Can I give or gift my gambling winnings away?
Yes, and No. If someone inherits your winnings they will be liable to inheritance tax If your estate is large enough. You can give your money away to people or charities but this may be liable to inheritance tax should you die within 7 years of the gift. You can give a £3000 tax free each year to any one person or you can give £250 away in a gift to anyone you like so long as one person is not gifted more than £250.
Should you give more than this away and you die within 7 years you will be liable for a percentage of the tax, this is known as the tapor rule. If you live longer than this this is now exempt from inheritance tax.
Do I need to pay gambling tax in other countries?
If you win in a country that taxes gambling profits then you will pay the tax at the point of supply, and so you don't need to declare it. If you want to bring winnings back into the UK (or any cash for that matter) you may be restricted on the amount of cash you can bring in, if travelling from outside the EU, to €10,00 Euros (or equivalent currency value).
It is currently not known how Brexit will effect the ability to bring in gambling winnings from other EU country's. For more about betting abroad see our dedicated page.
History of Gambling and Betting Taxes
Gambling and betting was not taxed effectively in the UK for most of history. Unlicensed gambling was causing such a legal and moral problem to the Victorians that the parliament of the time issued the Gaming Act of 1845. This made a wager unenforceable by law and therefore rendered all contracts between bettor and bookie invalid. This didn't stop gambling but it certainly made it into an underworld practice.
In the late 1800's gambling was finally allowed, but only from the government run Totalisator Board (Tote) at select tracks and courses. The tote could conveniently set odds and pump profits back into the Treasury.
Over time some one-off exceptions emerged such as the Football Pools. This was a betting phenomenon and for most people in the UK the only experience of gambling they had. Despite legal battles with the football league and sneering from the government the pools were classed as a low wager competition and was allowed.
By the late 1950's black market betting was rife and the government had neither the resources or the motivation to stop it. In an 'if you can't beat em' join em' approach the government licenced off site betting shops under the 1960 Acts and the betting levy at the same time that remained in place until 2001.
Individuals and entities such as foreign corporations are still subject to US tax at a flat rate of 30% on income received from US sources, even if they are not US citizens or residents. A taxpayer may have the opportunity to reduce this fixed tax rate by filing Form W8BEN if his/her country of residence has an existing Income Tax Treaty negotiated with the United States.
Form W8BEN, US tax return and Foreign Nationals
This type of non-resident tax is withheld by the source of the income, or payor. The payor, also referred to as the withholding agent, has the responsibility of deducting and withholding that tax from your income and paying it to the Internal Revenue Service (IRS). If the withholding agent fails to meet this requirement, they may be held personally liable to pay the tax owed by you. This is the reason that these agents take every precaution to ensure that their obligation is met. One step in this process is to obtain a certification from the payee as to whether or not they are a US resident or citizen or a foreign individual subject to this special tax rate.
Permanent residents and citizens are not subject to the 30% (or lower treaty rate) withholding tax that foreign individuals are required to pay. Instead, foreign individuals must complete a form in the Form W-8BEN series, such as Form W-8BEN. US taxpayers use Form W-9 to file theirs. Form W-8BEN is also considered if Form 8833 must be filed.
The payor of the earned income is informed of the filing status of the individual when they have a W-8BEN on file. This fact will alert them to take out the appropriate withholding tax from the payee’s salary. When the payee is a US taxpayer, they will complete a W-9 and the payor will know that the 30% withholding tax rate does not apply.
What Income is Subject to 30% Withholding
A foreign individual will be subject to the 30% tax rate on any income they receive from the following US sources:
- Interest – this includes certain original issue discount (OID);
- Dividends;
- Rental income;
- Royalties;
- Premiums;
- Annuities;
- Compensation for, or in expectation of, services performed;
- Substitute payments in a securities lending transaction and
- Other fixed or determinable annual or periodical gains – or FDAP income- profits, or income.
This mandatory withholding tax is applied to the gross earnings of the foreign individual or entity.
There are some types of income earned in the US that will not be subject to this 30% withholding tax. Some of examples of these include:
- Broker proceeds such as the sale of US stocks or securities;
- Short term OID of 183 days or less;
- Bank deposit interest;
- Interest, dividends, rents or royalties sourced from a foreign payor and;
- Proceeds from a wager placed by a non-resident alien individual in the games of blackjack, baccarat, craps, roulette, or big-6 wheel. You can find more information on US tax assessed on gambling winnings of a foreign individual in another blog post.
You still may need to submit Form W-8BEN to claim an exception from any US information reporting and the back-up withholding for these types of US source income.
US Withholding Agents
The payors of the income to foreign individuals or entities, or the US withholding agents, are required to withhold the tax from all income paid to them. This tax must be withheld at the source of income before any payment can be made to the foreign person.
It is the withholding agent who is held responsible to ensure that the proper withholding tax is upheld, resulting in most of these payors being extremely diligent in making sure that it takes place. Otherwise, the alternative could be being held responsible for paying any taxes which were not withheld. This makes it highly unlikely that a foreign individual could avoid having to pay the stipulated withholding tax.
Reduced Tax Withholding With the Form W8BEN
A foreign person earning income in the US can have the 30% withholding rate reduced based on any applicable tax treaty for the foreign payee – the foreign individual who is receiving the income.
In order for the payee to claim a deduction under the rules of a relevant tax treaty, the withholding agent must first receive a Form W-8BEN from the foreign individual. It is only then that they can grant the payee the withholding reduction on the earned income outlined in the tax treaty.
Form W-8BEN must be signed and dated by the individual earning the income in question, or by an authorized agent as evidenced by a completed power of attorney form. IRS Form 2848, Power of Attorney, is sufficient to fulfill this purpose.
Related Forms to the Form W-8BEN Series
Foreign individuals who are earning a US income will generally be required to complete Form W-8BEN but there are other forms in the series, W-8BEN-E, W-8ECI, W-8-EXP and W-8IMY. These forms may be necessary based on the circumstance of the payee, such as if they are an individual or an entity.
A US taxpayer is not required to complete any of the forms found in the W8 series. They instead must complete Form W-9 in order to avoid having to pay any type of mandatory withholding tax.
Claiming Tax Treaty Benefits with the Form W8BEN
In the event that there is a tax treaty between the United States and your country of residence that provides an exemption from, or reduction of, withholding for certain items of income it is your responsibility to report this to the source of your income. All foreign individuals for whom a treaty applies should notify the payor of their foreign status in order to claim the benefits that they are entitled to. In most cases you will do this by filing Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Withholding and Reporting (Individuals) with the withholding agent.
W8-BEN Exemption from Withholding
A reduced rate of withholding tax will apply to a foreign individual that provides the payor with a Form W-8BEN claiming a reduced rate of withholding tax under an income tax treaty. The payee will be required to provide a US Taxpayer Identification Number (TIN) except where the income received is derived from certain marketable securities. They must also certify that:
- They are a resident of a treaty country;
- They are the beneficial owner of the income;
- If it is an entity, that it derives its income within the meaning of Section 894 of the Internal Revenue Code which states that it is not fiscally transparent; and
- That it meets any limitation on benefits provisions contained in the treaty if applicable.
Limitation on Benefits Provisions
Limitations on benefits provisions will generally prohibit residents from third countries from obtaining treaty benefits. In other words, a foreign corporation should not be entitled to a reduced rate of withholding tax on its earnings unless a minimum percentage of its owners are citizens or residents of the treaty country or United States.
10% Tax On Gambling Winnings
Where to Send the Form W8-BEN
The Form W8BEN must be presented to the withholding agent or payor in order to claim a reduced rate of withholding tax. It should not be sent directly to the IRS.
Gambling Winnings Tax Rate Uk 2020
How long is the Form W-8BEN Valid?
It is important that the Form W-8BENBEN be kept up to date in order to avoid having tax wrongfully withheld from your income. Recovering wrongfully withheld taxes from the IRS is a time consuming and costly process.
A Form W8BEN that is provided without a valid US TIN will remain in effect from the date that the form was signed until the last day of the third succeeding year unless a change in your circumstances makes any information on the form incorrect. Monitoring the expiration date of your forms is important to ensure that you are not wrongfully taxed on your earnings. If so, your only recourse will be to file a tax return and wait to receive a refund from the IRS.
A Form W8BEN that is filed with a US TIN will remain active until a change in your circumstances makes any of the information on the form incorrect. This is provided that the withholding agent reports on Form 1042-S for at least one payment made annually to the beneficial owner.
Do you have more questions about the ways to minimize US expat taxes?
States That Tax Gambling Winnings
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