The high rollers among you will of course already be aware that your gambling winnings aren’t taxable in the UK. To be fair, even the smaller stakes players know this.
Here, we have a system in that we do not have to pay taxes on any of your winnings or stakes. And while this wasn’t always the case, today, this applies to all types of gambling, betting, poker, bingo slots and lotteries.
In many ways you are still paying tax on gambling it is just this is now put directly onto betting companies in the form of a point of consumption tax. This 21% tax online and 15% in retail shops ultimately gets passed onto the customer through lower value odds and payouts. Once you do win though it has effectively been pre-taxed and so you do not need to worry about paying any further tax at that stage.
If you do land that big one, or you simply stack up a lot of gambling winnings in your life, you can rest assured knowing that HRMC are not entitled to a slice and can only watch on. That is until you want to give that money away or leave it to someone who will inherit it. Here we will look at that aspect of tax on gambling winnings.
History Of Gambling Tax In The UK
It wasn’t always so rosy for UK punters though. From 1960 through 2001, when Gordon Brown abolished gambling tax in that year’s budget, bettors could choose to pay 9% tax on either the stake (keeping it minimal) or their winnings (potentially all or nothing).
This changed just after the century however and a 15% tax on bookmakers and their gross profits was imposed on the point of supply instead. It was around this time that many UK bookmakers, led by BetVictor, moved their online operations offshore to Gibraltar where tax was capped at 1%.
In 2014, there was another alteration the 2005 Gambling Act when tax was changed to 15% on all gross profits at point of consumption including those firms holed up in Gibraltar and the Isle of Man. In 2019 the tax rate was increased to 21% for online betting.
Does this situation mean that people who use gambling as their main source of income earn a tax free living? Well, yes, even in the case of professional gamblers, winnings are not taxable.
Gambling winnings, therefore, remain tax-free, regardless of whether it’s your main source of income or just a bit of fun. The only counter to the rule being if a player is appearing somewhere for a fee, thus professionalising his or her appearance.
Spread betting also falls outside of these rules, it is actually classed as trading, meaning if you do it as your main source of income then you are liable to pay income tax on this for of gambling.
What About Inheriting Gambling Winnings?
While your winnings aren’t taxable by any gambling laws, other taxes may still apply, not least of all your winnings could be vulnerable to an inheritance tax when you die.
Inheritance tax is levied on property or cash that somebody acquires by means of a gift or, well, inheritance.
If someone inherits your winnings they will be liable to inheritance tax so long as your estate is large enough. You might choose to get around this tax by giving your money away.
You can give away a tax free £3,000 annually to a person or even dish out up to £250 away in a gift to anyone you like so long as it is no more than £250.
Even if you do give your money away to a charity, it can still be taxed should you die within 7 years of your donation. Should you live longer than those 7 years, all monies will be exempt from the inheritance tax.
The threshold for this tax is £325,000.
Does This Only Apply To Big Amounts?
Not necessarily. You may have say £20,000 in gambling winnings saved as cash or assets, which of course would not be enough to be liable for inheritance tax on its own. If, however, the rest of your estate was worth over £325k then this money, no matter its source, will be added onto the top of that amount and if that takes you over the threshold there will be tax to pay.
Even if you use gambling winnings to buy a house and give this away in your inheritance it does not matter, the value of the house (or assest) will still be calculated as part of your estate.
The choice if you are in the situation is either to give your money away in small amounts over a number of years or face the fact it could be liable for inheritiance tax.
