It could be said that in the United Kingdom we are lucky when it comes to gambling. We have quite a liberal market offering plenty of betting options to us, and we do not have to pay any taxes on stakes or winnings obtained from gambling. Of course, this does not mean that tax is not paid at all. Instead, the betting operators pay taxes directly to the government, rather than the players themselves – so in effect you are still paying tax but this is reflected in higher margins for the operators. This arrangement is not something that exists as a rule in all countries, though, and if you are gambling abroad you may be subject to taxes on your winnings.
If you were to take a look at the United States of America for example, then players are taxed on their gambling winnings. Therefore, if you gambled in the USA and you won some money, you would have to pay tax on the amount won. Fortunately, you can potentially claim the tax back. This can only occur if the United Kingdom has a tax treaty arrangement with the other country, though.
Of course, over the years, Las Vegas has been quite the gambling haven for British tourists. But, in the course of potentially winning, they have had to cede a certain amount up to the US authorities in taxes. This is why it is of little surprise that these players have sought out what route to take if they intend to claim that tax back. We will take a look at the process you need to undertake in order to get that money back. Be prepared for filing some papers and reporting the tax claim to HMRC!
Tax Treaties Between the UK and Other Countries
The world would be a much better place if these tax treaties were available between the UK and all other countries. However, this is not the case. That being said, it has entered into agreements with a nice selection of worldwide locations where taxes are concerned. It would be ludicrous for us to list every single country here, so it’s fortunate that the government has a specific page where you can seek out which countries these treaties have been signed into with.
Fortunately, some countries with large gambling sectors have signed into agreements with the UK. As noted, the United States of America is one of them. Others include Australia, Austria, Brazil, Bulgaria, Canada, China (including Macao), Denmark, Estonia, France, Germany, Hong Kong, Ireland, Malta, Monaco, the Netherlands, New Zealand, Spain and Sweden.
That is not to say that all of those countries specifically charge gamblers tax on their winnings. But if they do, then there is a process that UK residents can undertake in order to claim that money back once back on UK shores. Furthermore, the tax treaties set up between countries do not necessarily relate to gambling. Countries like Pakistan or Iran hold treaties with the UK, but neither of those countries provide legal gambling within their borders.
It is important to remember that what takes place when it comes to gambling winnings is not something that should be confused with “double tax treaties”. This is something that occurs when someone is a resident in two countries and is intending to avoid paying tax in both of them. As you can see, this is something completely different.
How to Go About Claiming Tax Back
We will use the United States of America in this example. Let us say that you visit Las Vegas and set about playing games in one or more of the casinos there. The United Kingdom has an arrangement in place with the USA, and Article 22 of that agreement states:
“Items of income beneficially owned by a resident of a contracting state, wherever arising, not dealt with in the foregoing articles of this convention (other than income paid out of trusts or the estates of deceased persons in the course of administration) shall be taxable only in that state.”
That may seem like quite bizarre wording, but to put it in simpler terms, tax remains a matter between the UK resident and the Inland Revenue Service (IRS) of the USA. In the US, the IRS applies a 30% withholding tax on gambling winnings, and this occurs automatically. Therefore, residents of other countries who have had this tax taken from winnings must apply to the IRS in order to obtain the tax back.
To go about this, you will need to fill out form 1040NR – U.S. Nonresident Alien Income Tax Return. At the same time, a 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding will need to be filled in. By doing so, you can reclaim some of, if not all of the 30% tax that you have paid on your gambling winnings.
Unfortunately, this is not a simple process to go through, as different countries require different forms. There is not a set process in place for all countries, which makes it difficult. Countries like Spain, the Netherlands and others have their own gambling winnings tax rules in place, so it is important to know how to claim the money back before you visit and play at their casinos etc.
Because it is all quite complicated, it is often better to just visit a country that does not charge you tax on your winnings. At the moment, there are 15 countries other than the UK that do not charge people tax on their winnings from gambling, which are:
- Austria
- Australia
- Belgium
- Bulgaria
- Canada
- Czech Republic
- Denmark
- Finland
- Germany
- Hungary
- Italy
- Luxembourg
- Malta
- Sweden
Do not be of the mindset that you can simply fly to Belgium or Romania for example and simply get away with betting as much as you like. The types of gambling and the level that you can do this to differs depending upon the country. If you do intend to gamble abroad, then be sure to research the country’s laws around the activity.
Using the USA example once again, it is prominent to note that claiming tax back may only be really relevant if you win a large amount. Let us say that you had a time betting at one of the Vegas casinos and you ended up coming away with $50 altogether. The IRS takes away 30% of this in taxes – $15. Are you going to miss that $15 (£10)?
It probably isn’t worth going through the hassle of filing all the paperwork for that amount. On the other hand, should you be lucky on the games in Vegas, you may win $2,000. Taking 30% off of that for the IRS would equate to $600 or roughly £430. Why would you want to give that up to a government in a country where you do not reside and won’t see any benefit from?
Gambling Tax Rates Around the World
Obviously, in our example, we utilised the USA, which charges a 30% tax rate on gambling winnings. This is not the tax rate used in all foreign countries, though. Different countries with gambling winnings taxes charge different rates. And these apply to differ types of gambling, too.
For example, if you were to bet in a casino in France, then you would be charged a 12% tax rate on wins in excess of €1,500. Those taxes are collected by the casino directly. Any gains earned by professional players that depend more on skill and strategy than simple chance (as when playing poker), will be filed with the tax authorities as non-commercial profits. Those winnings are subject to French income tax. At the same time, 7.5% tax on sports betting and horse racing wins (+1.8% levy) is chargeable in France.
Greece also has its own winnings taxes to adhere to, too. According to Article 60 of Law 2961/2001, as replaced by Article 22 par. 18 of Law 4141/2013, which pertains to the taxation of customer winnings, the winnings from online chance games are subject to tax, after the deduction of an exempted amount of €100, at a rate of 15% for winnings of up to €500 and at a rate of 20% for winnings of €500.01 and above.
According to the system in Latvia, winnings that do not exceed €3,000 in a calendar year are not taxable. However, anything from €3,000 – €55,000 in that same time period is taxed at 23%. Anything bigger than this is taxed at 31.4%.
Likewise, if you travel to Nigeria and participate in sports betting there, you will need to pay tax. This is because Nigerian law dictates that such gambling winnings are considered as taxable income. This stands at 24% of the amount that you win.
Spain changed its laws in 2013, with the Finance Ministry highlighting certain key elements of such. Lottery and betting winnings that are in excess of €2,500 in Spain are now subjected to a tax rate of 20%. The law does dictate that gambling losses can be discounted from winnings in the same taxable period, though.
UK Gambling Winnings Rules For Foreigners
Let us flip this scenario on its head and say that a US player visits the United Kingdom. They visit numerous casinos and manage to come away with a nice sum of £500 in winnings from their activities within. Obviously, the UK does not charge players tax on the prizes that they win from gambling establishments.
However, US citizens are required to report whatever income they obtain. This is regardless of whether those funds were obtained while on U.S. soil or foreign land. The player visiting the UK from the United States will have to report it in a U.S. tax return at the end of the tax year. Failure to properly disclose this can result in high penalties being imposed once discovered. However, it is also the case that players can deduct any gambling losses from the income that they make in UK casinos. If that person wins £5000, but has also lost an amount equating to £1000 as well, then the income that would be taxed stands at £4000.
