Free Spins Taxable Winnings UK
When it comes to gambling and the tax on any winnings that come from gambling, the tax laws apply to the country the player is residing in and not where the online casino is located or registered.
This is a very important distinction and can greatly affect what rules the player needs to follow. In this article we will outline and discuss the United Kingdom tax laws regarding online gambling wins.
A History of UK Gambling Taxes
It wasn’t until relatively recently that gambling wins in the United Kingdom became tax-free. In 2001, Gordon Brown abolished the previous 6.75% Betting Duty. This duty was withdrawn to make it worthwhile for bookmakers and casinos to continue operating within the UK.
At that time it appeared that many gambling establishments were thinking of moving overseas and as such would take their jobs, and of course dividends, away from the country. A point of consumption tax relating to gambling is still in place; however, this is not a tax applicable to players, but rather to the providers of the games instead.
Betting and Gaming Act
Old gambling tax laws have been in place for a few decades. Before the introduction of the Betting and Gaming Act in 1960 it was actually illegal for punters to place a bet anywhere that wasn’t a licensed racetrack. In 1893, the Gaming Act created the Tote board where it was acceptable to place bets at specific racecourses.
During this time there were of course many illegal bookmakers in operation and a large black market developed pushing the government to see that there was a large area of betting that could in fact be taxed. This is where the 1960s gaming act came into being, solely in order to regulate and license the betting shops that now existed on the streets.
Legal betting shops opened in 1961 but operated under an agreed levy charge of 6.75%. The bookmakers, in an effort to regain some of this, passed on the tax to bettors in the form of a 9% betting tax. This tax could be paid at the same time as the bet or taken out of the winnings later on. However, a 9% tax on winnings could potentially be rather substantial so most people naturally chose to pay the fee on the original wager.
Winnings are free to keep
Nowadays, there is a system in place that if there is a tax on a profit made from a specific activity there is also a provision that means there has to be a rebate if there are losses incurred through performing the same activity. In gambling terms, gambling is an activity and usually there are more losses made by the players than wins. This means that for UK gamblers all winnings, be it from an online casino or in a bookmakers, are free to keep. To be specific, this covers all game types from slots, through to table games, bingo and lottery.
A tax of 15% is now levied on overall profits made by the gambling providers or bookmakers. Although this was originally a ‘point of supply’ tax, it has now been changed by the introduction of ‘Remote Gaming Duty’. The combination of the Gambling Act of 2014 with ‘Remote Gaming Duty’ means that no matter where the operations are based, the bookmaker or casino is liable to pay 15% on any bets placed by players residing in the UK.
Most people would assume that as a professional gambler, winnings would be declared as such; after all it is a job. But surprisingly, it doesn’t work that way. As mentioned previously, all winnings that are made from betting are now completely tax free and this applies to both the professional gambler and the recreational gambler.
This is due in part to the fact that professional gambling is not recognised by HMRC as being a taxable business. It is even specifically stated in the latest HMRC business income manual that it doesn’t matter if someone is successful enough to make a living from gambling, it still does not constitute their activities as being a trade or job. Therefore, even if gambling wins make up the majority of a person’s income they are still tax free under British law.
Tax on Spread Betting
Neither spread betting nor index betting are covered by the UK Gambling commission. These actually fall under the Financial Conduct Authority, however, even with this being in effect; players will not need to pay the 18% Capital gains tax on this money. Unlike with professional gambling, if a consistent spread bettor claims this as their primary source of income they may be classed as a trader and therefore subject to taxation. However, losses would be able to be written off.
For UK players it is possible to give or gift winnings in certain circumstances. For example, someone in the family could inherit the winnings and, depending on the size, may be liable to pay an inheritance tax. Likewise if winnings are gifted to charities or people, this money may also be subject to the inheritance tax if within seven years of giving the gift the giver were to pass away. In other areas, £3000 can be gifted to a single person tax free in any given year.
However, giving away more than this, or passing away within seven years of the gift, and the money will become subject to the taper rule. If the person were to live longer than this, the money would no longer fall under the inheritance tax rule and become exempt.