No Taxes on Winnings! – The Mobile Casino Blog
Here’s a little known fact about gambling: In the UK, you don’t have to pay any tax on any winnings or stakes! This is true regardless of how much you win from gambling, whether it’s £100 or a few million pounds. This regulation applies to all types of gambling – betting, casinos, lotteries or Bingo – for land-based bookmakers as well as online casinos. This means that you are free to spend your winnings in whatever way you choose. In this article, I’ll investigate what this means for players and casinos.
If you are a resident of United Kingdom, you do not pay taxes on any winnings. Some casinos and lotteries also pay out the entire amount as a lump sum, whereas others may pay out a certain amount each month. You should check the terms and conditions if you are concerned or read our casino reviews, in which we do the legwork for you. If you are a resident of another country, the prize may be taxed.
Most notably, Spain, Portugal and Switzerland tax their residents on EuroMillions lottery winnings. Spain taxes winnings in excess of EUR 2,500 at a 20% rate. Besides winnings, stakes or wagers placed are also exempt from VAT. You don’t pay tax on lottery tickets or Bingo sessions. However, there are many technicalities involved in how VAT is applied in the gambling industry.
While wagers are exempt, standard-rate VAT is applicable to hire charges for machines and commissions paid by the lottery promoter or selling agents. For more information, do check the HM Revenue, Customs’ Notice on VAT for betting, gaming and lotteries.
However, any “income” generated from your winnings will be taxed as part of your normal income tax. This includes interest and investments. More details are included below.
Why are Winnings Tax Free?
Seems too good to be true, doesn’t it? In the UK, HM Revenue and Customs does not regard lottery winnings as income. Income taxes are assessed on profits or gains from any trade, profession, employment or vocation. Gambling isn’t a trade, as no services are exchanged between casinos and players.
We should thank Mr Alexander Graham of Amersham. Mr Graham made an entire livelihood out of betting on horses. In 1925, Mr Graham lodged an appeal against an assessment of £300 in respect of betting transactions. Inland Revenue had claimed the amount from him under the 1918 Income Tax Act.
Mr Graham’s laywers argued: “backing horses could not be a trade or vocation”, and that “no business or system could be constructed of such betting.” As it goes, Mr Justice Rowlett says while giving judgement, “A bet is merely an irrational agreement that one person should pay another person on the happening of an event.” The law viewed Mr Graham as a person “addicted to betting” for betting every day and adds, “There is no tax on habit.”
Besides, I can imagine that it is extremely hard to enforce taxes on gambling winnings. The government would also have to track the poor folks who’ve won a few hundred quid. The other logic is that if the government taxed winning bets, they would have to provide tax relief for all the losing bets as well.
Was Gambling Always Tax-Free?
Betting shops were legalised in the 1960s, on the condition that a 9% tax was levied on the stake or winnings before placing a bet. This tax on the gambler was later abolished in October 2001, and replaced with a 15% levy on the gross profits of bookmakers. However, a worrisome fact was that the country was losing revenue to offshore gambling sites, most of which were online.
Starting 1 December 2014, the government imposed another law to strengthen the domestic market. The new rule affects offshore casinos who offer remote betting and gaming to UK consumers; these guys would have to pay the same 15% tax as UK-based companies. This new law covers remote gambling operators such as those in Gibraltar and Isle of Man. In essence, the HMRC changed how the duties are taxed from ‘place of supply’ to ‘place of consumption,’ and offshore casinos that have gambling activities in the UK are subject to POC tax (more information below).
So, Who Pays Tax?
The casinos and bookmakers do. This billion-dollar gambling industry has to contribute to the country’s economy in some form or the other. There are different taxes for gambling-related businesses, including General Betting Duty, Gaming Duty, Bingo Duty, Machine Games Duty, Lottery Duty and Remote Gaming Duty.
Each type distinguishes between the different types of gambling, and real money gaming and businesses must register for each before accepting customers. As mobile and online casino players, we would be most affected by the Remote Gaming Duty, which is charged at 15% of the businesses’ profits. These profits are the amounts paid as stakes, less amounts paid out as winnings.
There are slightly different rates for different games too – machine games have a lower rate of 5% for machines where the maximum cost per game is 20p and the cash prize is £10 or less. Lotteries are charged at 12%, fixed odds bets at 15%, financial spread bets at 3% and 10% on Bingo. To learn more about each type, visit the UK government’s official website on gambling duties.
Of course, these costs are passed onto the public in some form, with slightly worse odds or stricter wagering requirements. Casinos are forced to juggle their profits and taxes well – we’ve seen many poorly-performing casinos close or getting acquired by larger ones in response to the recent Point of Consumption Tax.
Professional Gamblers Don’t Pay Tax Too!
It is tricky to discriminate between casual and serious gamblers. To quote from the case of Graham v Green (1925), in which a man’s sole means of livelihood came from betting on horses: “He is doing just what a man does who is a skilful player at cards, who plays every day. He plays today and he plays tomorrow, more skilful than the people with whom he plays, and he wins. There is no tax on habit.”
Even if a person earns a living by gambling, it does not make his activities a trade. However, “professional gamblers” may carry on a trade such as receiving appearance money for appearing on television programmes; in other words, this person is providing a service to the TV company. This sort of income would be taxed.
Other Considerations for Jackpot Winners
If you’ve recently won the lottery, good for you! Splurge a little and spend the rest wisely. The general rule goes – if you’ve won more than £500,000, you should consider managing it professionally. The majority of lottery winners are sensible in spending their newfound wealth. Instead of blowing it on a weekend getaway, a rational winner would use it to pay off their mortgages, stow away some for their children’s futures, purchase property and so on. This is when matters get slightly complicated. Other taxes may be applicable on your winnings. Income generated from winnings would be subject to ordinary income tax. Income earned through investments could include capital gains tax at 18%.
Camelot data reveals its lottery winners generated tax receipts of over £500 million. The wisest move would be to engage a financial expert to help you make the most tax-efficient investments. Besides, if these winnings form part of your estate, it is liable for inheritance tax when you die! In the UK, inheritance tax (IHT) is tax levied on property or cash acquired by gift or inheritance. If a person’s estate is worth more than the ‘inheritance tax threshold’ of £325,000, inheritance tax is due – 40% on anything above the threshold. Statistics show that lottery winners have gifted more than £1.2 billion to their families.
These gifts are also subject to the inheritance tax. Should you die before 7 years have passed, the recipient is taxed on a sliding IHT scale. To protect your family from IHT, winners can draft a simple syndicate agreement. According to this HMRC document: "No liability to inheritance tax arises on winnings by a football pool, National Lottery or similar syndicate provided that the winnings are paid out in accordance with the terms of an agreement drawn up before the win." Other ways to protect your family include setting a trust fund, investing in private pension schemes, purchasing life insurance policy or giving money away to charity. This useful guide from The Guardian explains how to manage your lottery millions. Too long, didn’t read? If you’ve pocketed millions from a jackpot, be sure to seek the advice from a financial advisor.
There you have it! Tax free winnings is just another reason to play slots and casinos; you could actually change your life with few pennies and some luck. Of course, that is provided you spend your winnings wisely.