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Author: Steven D. Thompson
Updated: 14/02/2023 10:44 AM
Sports Betting Taxes
Many of us probably don’t think about sports betting taxes when joining a sportsbook. But this is a topic all gamblers should explore to determine if the law requires them to pay taxes on gambling winnings. Read this guide to find out if your gambling income is subject to any betting tax. We’ll mostly cover betting taxes for online bookmakers in the UK.
Sports Betting Winnings are Tax-Free for UK Punters
Let’s start by lifting the burden off your shoulders if you don’t know if your gambling income is considered taxable income. We are happy to let you know that you are not required to pay any taxes on your sports betting winnings in the UK.
The same applies to all winnings obtained from casino games. That’s a good reason to smile because you can always keep what you win. Other countries such as the US will require you to report winnings and file your tax return. We shall talk about that later in this guide, so read on.
Why the UK Does Not Tax Your Gambling Winnings
We all know that taxation helps governments to increase tax revenue and thus grow a country’s economy. The big question is, why are gambling winnings not considered to be taxable income in the UK? Well, we could argue that taxing spread betting so would lead to negative tax revenues if we consider how gambling works.
In gambling, the winnings of some players are supposed to be offset by the gambling losses of other players. Therefore, introducing a tax on sports betting winnings would require a system of credits or allowances for the losses. The problem is that the tax amount would be equal to the tax credits. And that would lead to revenue losses rather than profits.
UK Sports Betting Operators Must Pay Taxes
One thing we must point out is that sports betting operators and any business offering gambling services must pay taxes as per tax laws. Income tax simply refers to the tax imposed on people or businesses based on the income or profits earned. As with other businesses, online sportsbooks in the UK make profits from their customers’ money. And they are required by tax law to pay a 15% tax on their earnings.
If you do your calculations, you’ll notice that a 15% income tax is a great source of revenue for the UK government. In the 2017/18 fiscal year, for instance, Her Majesty's Revenue and Customs (HMRC) collected £2.9 billion via gambling duties. So, the government makes a lot of money from operators in the gambling industry even though the players or bettors themselves don’t pay taxes on gambling winnings.
Do Professional Gamblers Pay Taxes?
If your gambling activity is not a mere hobby, then you might consider yourself a professional gambler. This means that you depend on gambling for a livelihood. So, does this make your gambling winnings taxable? What we know for now is that all gamblers are the same in the eyes of the HMRC.
The point is that, just like casual gamblers, professional gamblers in the UK are not required to pay taxes on their winnings. But things can be different in other countries as we shall learn in this article.
History of Gambling Tax Law in the UK
Perhaps a brief history of tax laws in the UK will paint a clear picture of how everything unfolded as far as gambling tax is concerned. The 1892 Gaming Act allowed gambling establishments to accept wagers at racecourses and tracks. But bookmakers could not take wagers off-site because it was considered illegal. However, the number of bookmakers participating in illegal gambling activities increased with time.
It was illegal to place wagers away from regulated racecourses until the introduction of the 1960 Betting and Gaming Act. The new law imposed a 6.75% levy on licensed betting operators. But bookmakers passed the levy to punters, requiring them to pay a 9% betting tax. Players could pay the tax while placing bets or after winning some money. The vast majority of bettors choose to pay tax on their bets because it was cheaper.
Point of Supply Tax
Punters were still paying taxes on their winnings until the introduction of the point of supply tax in 2001. The new tax replaced the betting levy with a 15% tax on the bookmaker’s gross profits. Therefore, the responsibility of paying gambling tax shifted to sports betting operators. Bettors were no longer required to pay betting tax until today.
Point of Consumption Tax
While the point of supply tax was a major step, there was a problem. This type of tax simply meant that operators were taxed based on their location. But UK online bookmakers soon realised that they could evade the tax by moving their operations offshore.
This led to the introduction of a new levy known as the point of consumption tax. Following its introduction, all bookmakers targeting UK players must pay the initial 15% tax regardless of whether they are operating locally or offshore. This became a law after the amendment to the 2005 Gambling Act in 2014.
Gambling Taxation Laws Outside the UK
Gambling tax laws vary from one country to another. The tax may apply to bets or winnings depending on the country. Countries like the USA, Latvia, Macau, France, and Romania require punters to pay levies on their betting winnings. In other places, betting taxes only apply to selected sporting events.
How the US Handles Your Tax Return on Betting Winnings
The US is especially serious when it comes to paying betting taxes. Since the Supreme Court legalised online gambling, all your betting winnings in the country are considered income. As per the Internal Revenue Service (IRS), your winnings are potentially subject to federal taxes each tax year. State taxes are also applicable if certain thresholds are met. The operator will send you and the IRS a tax form if your net profit is $600 or more. Any taxes withheld will also be reported to the IRS via Form W-2G.
US players must declare the net profits on their state or federal income tax return. They are required to report their net winnings as ‘other income’. This includes all winnings obtained from bets on horse races, table games, raffles and lotteries. The tax rate and tax base depend on where you are while placing the bet.
Rather than using the standard deduction, bettors can itemise tax deductions to deduct gambling losses or certain expenses. Players can reduce their tax liability if they deduct losses. But most players don’t itemise even after the Tax Cuts and Jobs Act increased the standard deduction. With that said, we should mention that some state governments will allow the losses to be carried forward.
Contact a Tax Professional if You Need More Help
Hopefully, the information we have presented here will help you understand gambling tax laws in the UK. But you are free to seek help from a tax professional if you have any tax questions based on your current location. You could also consult an accountant or financial advisor to establish if you are required to pay any taxes on your winnings at best betting sites online.
Unlike the US where a state or federal tax may apply to your gambling winnings, you can keep what you win at UK bookmakers. The tax code won’t stand in your way as a player because bookmakers will take care of the levy. There are no tax forms to worry about, so you’ll receive your gambling income the way it is. So, we can say that the UK gambling industry is a fair market to the player. But you should take note of betting tax laws in other countries if you are betting outside the country.
Feel free to join any of our top UK bookmakers on this page to bet on your favourite sports. You could collect a free bet or receive a nice welcome offer. Don't forget to gamble responsibly to prevent problem gambling. Good luck!
Frequently Asked Questions
Do I need to pay tax on my gambling winnings at betting sites?
Your winnings at UK bookmakers are not considered taxable income by law. But sports betting operators must pay a 15% income tax on their earnings. Note that bettors in other countries such as the US are required to pay taxes on their betting winnings.
Do professional gamblers pay income tax on their betting winnings in the UK?
The HMRC does not distinguish between a casual gambler and a professional gambler. Thus, both types of gamblers are not required to pay any taxes on winnings from their gambling activities.
Do foreigners pay gambling tax on their winnings?
No. You don’t need to pay any gambling taxes if you visit the UK and play casino games or bet on sports. But your winnings may be subject to betting laws in your country.