Tax on Gambling and Related Matters
- The TopTrap Greyhound Profit And Loss Account On Betfair - March 17, 2022
- Betfair Best Execution – 11 Requested & Filled At 320 - January 16, 2022
- BTB System e-book - March 13, 2015
This post applies to the UK only. I know nothing about the tax laws in other countries, so if you do not live in the UK I strongly advise you to research the tax implications of winning money by gambling before you start.
Disclaimer – I am neither a lawyer nor an accountant. The information in this post is gathered wherever possible from official sources. I have done my best to provide a complete picture, but laws can change and I may have missed something. If you are in any doubt as to your position you should consult a financial advisor, accountant or solicitor.
The simple answer to questions about tax on gambling is that there isn’t any. However there are things that you should be aware of before you start, as they may affect you in certain circumstances. In particular, if you are claiming state benefits and large amounts of money appear in your bank account you may lose the right to claim your benefits. If this is the case you should think very carefully before proceeding, as the money you earn from these methods may be offset by reduced income from benefits. It is also possible that you could be prosecuted for benefit fraud if you did not declare that you had the extra money.
Income Tax
There are no references on the HM Revenue and Customs website to income tax on gambling because gambling winnings are not considered to be income. The nearest is this: “Wins from Premium Bonds are free from UK Income Tax and Capital Gains Tax.”
Capital Gains Tax
See http://www.hmrc.gov.uk/manuals/cg1manual/cg12602.htm
TCGA92/S51 (1)
Winnings from betting (including pool betting or lotteries or games with prizes) are not chargeable gains, and rights to winnings obtained by participating in any pool betting or lottery or game with prizes are not chargeable assets. For example, a gain or loss realised on the purchase of a share in the winnings of a ticket which has drawn a horse in a sweepstake is outside the scope of the tax.
Where the prize takes the form of an asset, it should be regarded as having been acquired by the ‘winner’ at its market value at the time of acquisition.
So all of that is pretty clear, and all the discussion I have ever seen on forums, and all enquiries to accountants agree that betting activities including matched betting and arbing are not subject to tax.
Running a Business
This is what the HM Revenue & Customs have to say about earning money from gambling: http://www.hmrc.gov.uk/manuals/bimmanual/BIM22015.htm
BIM22015 – Trade: exceptions & alternatives: betting and gambling: introduction
The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green [1925] 9TC309:
“A bet is merely an irrational agreement that one person should pay another person on the happening of an event.”
This decision has stood the test of time. In an Australian case, Evans v FCT [1989] 20ATR922, 89ATC4540 Hill J said:
“There has been no decision of a court in Australia nor, so far as I am aware, in the United Kingdom where it has been held that a mere punter was carrying on a business.”
However, an organised activity to make profits out of the gambling public will normally amount to trading.
Although over time new forms of games of chance have evolved, these principles remain the same. The taxpayer placing a spread bet is not normally carrying on a trade (see BIM22020 for exceptions). They are not taxable on the profits, nor do they receive relief for their losses. The bookmaker organising the spread bet is taxable on their profits.
HM Revenue & Customs definition of a bet: http://www.hmrc.gov.uk/manuals/bimmanual/BIM22016.htm
HM Revenue & Customs definition of a Professional Gambler and the implications: http://www.hmrc.gov.uk/manuals/bimmanual/BIM22017.htm
HM Revenue & Customs definition of Organized Activity http://www.hmrc.gov.uk/manuals/bimmanual/BIM22018.htm
HM Revenue & Customs – some examples of cases involving tax and gambling http://www.hmrc.gov.uk/manuals/bimmanual/BIM22019.htm
There is a list of the various types of betting tax paid by bookmakers here: http://customs.hmrc.gov.uk/channelsP…yType=document
My Personal Opinions – the risks
This section contains my own interpretation of how things are and what might happen in particular circumstances, both now and in the future. Many professional arbers disagree with me, which is perfectly reasonable.
A certain proportion of individuals are randomly selected for tax investigation every year. My own mother and father were both investigated individually within the past 10 years, not because they had done anything wrong, but simply because they were randomly chosen. It is therefore very foolish to try to hide substantial amounts of money or sources of income from the tax man. It is wise to keep clear records of what you have done which could be presented as evidence of gambling winnings in a tax investigation.
As far as I can see from all the information I have read, there is currently no liability for tax on winnings from matched betting, arbing, casino bagging or trading on betting exchanges. Such activities appear to be grouped under the heading of “gambling”, even if a profit is certain. There is no guarantee that this will continue to be the case. My concern about this stems from this quote from the section on “Organized Activity” (link above): “The key feature is that the taxpayer is likely to be involved in the organisation of the activity. They are not mere punters. They are carrying on an activity where the odds are in their favour.”
I think there is much more likelihood of people running into trouble with this if they are using other people’s accounts (with permission – doing so without permission would be identity theft) as well as their own, known as gnoming. Many professional arbers do this in order to avoid the problems with limits imposed by bookmakers. I am seriously uncomfortable with the idea of gnoming and will not do it myself. It breaks the bookmakers t&cs, and I believe it borders on fraud. (Definition of fraud, from Wikipedia: In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual.)
Personally I believe that it is likely that using other people’s accounts to earn large quantities of money from arbing etc, and paying the individuals a sum of money for the use of the accounts, would be regarded as a business (or trade) by the taxman. If discovered, tax could be charged on profits, probably going back 7 years, maybe more. In addition there could be prosecution for tax evasion. This opinion is regarded as alarmist and ridiculous by most professional arbers.
In addition, if you are using other people’s bank accounts and there are large and repeated transfers of money between theirs and yours, this may expose you to investigation for money laundering as well as tax. I believe the banks are legally obliged to report transactions over a certain size. The amounts of money moved around the accounts of professional arbers are very large. These movements could also be considered as gifts, and there is a strict limit on the amount of money you are allowed to give to other people before inheritance tax is chargeable (for details see http://www.hmrc.gov.uk/inheritanceta…empt-gifts.htm ). Although inheritance tax is only chargeable when people die, the allowances are based on a rolling 7 year period, so a large gift can bite you for some time into the future (it is the recipient of the gift who is liable for tax). If the winnings from bookmakers were withdrawn into your friend’s account and passed on to you, they could be regarded as gifts from your friend. If your friend then died, the implications could be firstly a large tax bill for you, and secondly, tax bills for anyone else who had been given a gift by your unsuspecting friend during the years after your betting activity on their behalf. I am not saying this IS the case, I am saying it could be. Again most professional arbers dismiss this as being extremely unlikely, although they do increasingly tend to use moneybookers rather than bank accounts for gnoming.
My conclusions are that the activities covered by this site should be free from tax under current legislation. You are wandering into a grey area as soon as you proceed beyond using accounts for yourself and your spouse. I will not entertain gnoming for my own purposes (as those who have tried to persuade me to do it are well aware!), but I am happy to discuss it (or anything else in this post) in the live chat with anyone who would like more information.
Forum discussion from BetSeventyTwo
Tax on Gambling Article
by AlistairH » Mon Mar 29, 2010 9:51 pm
I’d like to thank corner123 for the article on Tax on Gambling. Very informative.
One question that it didn’t answer (and I’m not surprised since I’ve asked two accountants, one tax consultant and a solicitor) is whether gambling profits should be declared on one’s tax return.
Yes, they are not liable for tax, but I suspect the Inland Revenue would look at their omission in a negative light. This is particularly true if one is claiming other means tested benefits or tax credits for example, as this income would have a direct baring on the calculation of those benefits, I presume.
As I said, I’ve had differing answers from numerous ‘experts’. People, who I think it reasonable for the average bloke in the street to believe, should now the situation. Yet apparently they do not.
Not surprisingly, I’m reluctant to ask the Inland Revenue directly unless it costs me, and given the quality of staff on their help desk, I wouldn’t be convinced that they told me the correct answer.
Has anyone got a definitive answer? Does income from gambling/trading have to be declared on a Tax Return, even though it is not subject to tax?
Alistair
by mikeymp » Mon Mar 29, 2010 10:15 pm
Who knows Alistair? All I can tell you is that I work full time and pay tax , I bet part time and have no intention of paying tax on my meagre profits
by gusyonok » Mon Mar 29, 2010 11:10 pm
all income from betting is yours to keep
by BetsToBefair » Tue Mar 30, 2010 8:45 am
Income is tax exempt. I prefer the term tax paid (tax is paid by the bookmaker). If you are still concerned ask your tax office to send you a letter in writing that confirms a) gambling turnover (you can only call it winnings when you stop) is exempt b) Don’t have to be declared.
As corner said having accurate records always helps just in case you are randomly selected and happen to get some wet behind the ears revenue person. If you are earning serious money then you will have accurate records by definition.
by AlistairH » Tue Mar 30, 2010 12:02 pm
I’m sorry, with all due respect, I think you’ve missed the point of my post. My question is not about whether gambling is taxable. It has been established that it isn’t. However, profit from gambling can still be viewed as income, just in the same way that you brother giving you £5K (yea right!) would be classed as income.
My question is, does that income have to be declared on a tax return? As I mentioned earlier, I’ve yet to get a definitive answer from financial experts, far less anyone else.
I have no desire to pay tax on my meagre profit as well, and I’m happy that that income is except. I’m more concerned that trading related income has to be declared which would then have a direct impact on any tax credits I am able to claim.
Alistair
by corner123 » Tue Mar 30, 2010 12:27 pm
Every year I send my accountant a list of all my income for my tax form, and every year he tells me that the gambling income is not taxable and does not have to be declared for income tax purposes. There is no place for it on the tax form.
I am absolutely certain that gambling income is not currently taxable, and as such, will not affect your personal allowance for income tax.
The word “trading” is confusing in this context. When the inland Revenue refer to trading they mean running a business (trade) in order to earn money. So if I was a racehorse trainer I would be taxable on the income from my trade (training). Financial traders on the stock exchange who trade in shares on behalf of other people and companies will also be taxable on their profits since they are running a business.
Sports trading on Betfair is classed as gambling as far as I am aware – you don’t get charged tax on your winnings, and you can’t claim tax back on your losses. My concerns in the article are that the wording of some of the examples I linked to could be interpreted to mean that if there was no possibility of losing then the activity might be regarded as taxable. The thing is that it is possible to lose by sports trading as well as win, and plenty of people do.
The law tends to act on precedent – I can find no references to precedent for sports trading (or any other form of betting other than by bookmakers) being regarded as taxable.
Incidentally, if your brother gave you £5k, that would not be regarded as income, it would be a gift. Gifts are taxable but as inheritance tax, not as income tax, and like income tax there are allowances.
by abaxas » Fri Apr 02, 2010 11:42 am
Gambling / income tax is VERY easy to understand.
If you derive an income from your gambling (ie you have no other source of income and gambling is your main job) you should technically pay tax on profits.
However in reality, no-one does, but that doesnt mean that the tax man wont come for you
Just stick some money aside and if the tax man commeth, you are ok.
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