A question I get asked a lot, is whether Betfair trading profits, or gambling winnings are really tax free in the UK; and it is a very good question, because we are all usually aware of what needs to be declared to the Inland Revenue, but is gambling really tax free?

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Say you’ve won the National Lottery worth £33m. Here are the implications of having £33m in the bank. Well, first of all, HM Revenue Customs doesnt regard lottery winnings as income, so the jackpot prize is tax free. In short, gambling and poker winnings are not taxed in the United Kingdom. This is a simple rule that protects poker players that play both online and off. Having said that, the government still collects tax revenue from the gambling industry by taxing the companies that take bets at 25% (both domestic and foreign). The basic answer isNO! Poker, casino gambling and sports betting are all considered to be tax-free, and have been for the last decade. That’s not to say there is no tax levied on these industries, but in the UK it is the operators who have to pay 25% tax on their income.

There has been quite a few shifts in law from the UK Inland Revenue over recent years on whether punters actually pay tax from any winnings from bookmakers, trading activities, (Forex) or from Betfair.

I suspect that due to the fact many people don’t really wish to report any additional earnings that may complicate their tax affairs, that this could potentially be losing you an easy, tax free income (matched betting being the activity where I receive the most questions, and which is easy).

Review Contents

Is Matched Betting Tax Free?

If you didn’t already know, matched betting is becoming increasingly popular as a way to make some extra money. In fact, it is probably the largest single activity of all the gambling, and bookmaker websites at the moment – because it simply works.

If you are interested in this as a possible source of income, then we have reviewed such options on this very website, and you can click the following fo full details:

Just to quickly explain, when Betfair started up as a rival to UK bookmakers, this created an ideal opportunity to make ‘reverse bets’. IE: With Betfair you can actually bet on something to lose (this is called lay betting), and this means that as well as betting for something to win via conventional bookmakers, you can make an identical, but with a reverse scoreline/outcome with Betfair, which will cancel both bets to an almost break even situation, and then just take all the enticements from bookmakers, and these enticements come in cash.

This is essentially what matched betting is, but is it tax free? I’ll get onto this at the end of the review.

Are Betfair winnings Tax Free?

Again, this is very similar to general bookmakers, as the Inland Revenue are at present declaring Betfair revenues as gambling, so the same rule applies.

Now that Betfair has grown in popularity, more and more people are trying to find out if they too can make a regular income using their website – and why not. That is what gambling is – trying to make an extra few quid without too much effort.

Betfair do charge their customers a commission charge on their winnings, and this actually starts at around 5%, so you need to be aware of this commission when doing any calculations for matched betting, or any other activities you may have when using their trading platform, as although it is a small amount, it can soon add up if you don’t take it into account.

Betfair’s 60% Premium Charges

There are reports of some Betfair users claiming that once you reach £250,000 in ‘winnings’ from Betfair, that they (Betfair) will place their own 60% tax on the winnings before they are paid out to you.

Now, this Betfair tax is NOT an Inland Revenue tax, it is just a (some would say crazy) little in-house ‘commission’ that Betfair has, in their wisdom, decided to place on their users – the people who actually make them a profit.

Remember though, that this is only after you have made £250,000 in winnings – a cool quarter of a million spondoolies, so I wouldn’t worry too much about their commission, because if you ever get to that stage, you will already be in a very good place 🙂

Do I Have To Declare All My Gambling Winnings?

OK, let’s get to the crux of this, because as I already mentioned, it is actually a very, very good question, and one that more, and more people are asking themselves (and me!).

In general, no UK gamblers/traders will pay tax on their winnings. They are Tax Free.

The Inland Revenue has now shifted to onus of any tax liable, to be paid by the companies, bookmakers, and trading outlets – such as Betfair, and this takes a whole heap of pressure of the punters/gamblers.

The main reason the UK government did this, was because a lot of revenue was being lost to offshore companies, and bookmakers using tax haven locations to avoid paying their taxes. So, they law was changed, and now UK gamblers no longer have to pay any tax on their winnings – becoming tax free – but the businesses (the bookmakers) do pay the tax on their overall business profits!

The official Inland Revenue Website page on the business side of the matter can be found here (The tax the businesses will pay):

And an extract from WikipediA:

Gambling in the United Kingdom is regulated by the Gambling Commission on behalf of the government’s Department for Culture, Media and Sport (DCMS) under the Gambling Act 2005. This Act of Parliament significantly updated the UK’s gambling laws, including the introduction of a new structure of protections for children and vulnerable adults, as well as bringing the burgeoning Internet gaming sector within British regulation for the first time.

And and extract from The Mail Online when the UK Tax laws on gambling changed:

(The above image is Copyright The Mail Online)

Although, to place a layman’s term on this, the following are details I researched on this subject:

You Do Not Pay Tax on Gambling in The UK

You do not pay tax on any winnings on any gambling, including the following:

• Matched betting profits.

• Betfair profits (backing or laying).

• Arbing (bookmakers may not like arbing, but it is still tax free).

• Bookmaker profits – Your winnings.

• Bingo.

• Casino’s.

Is has been said that one of the main reasons why the UK Inland Revenue decided not to tax the ‘punters’ was because it was becoming a logistical nightmare, and if tax was to be claimed on winnings, then they, the Inland Revenue, could potentially open themselves wide open to the possibility of any losses being claim back in the same way – and most gamblers lose their money!

If tax was being paid in the same way a business would pay tax, then the same businesses could potentially claim back losses up on their tax returns – and as we all know, more people lose when gambling than win, so government closed that possibility very quickly.

So now, the bookmakers pay the tax on their yearly profits.

Gambling Profits as a Sole Source of Income?

There have been rumours that if gambling is your 100% sole source of income, then the Inland Revenue could possibly look at that as a tax benefit, but to date I have not read of a single case where this was actually followed through by the Inland Revenue, and even if they did, there are potential ways around that.

A small eBay business as a tiny sideline would put paid to gambling being your sole source of income. I am not condoning such an action, of course as we all need to pay our taxes by law, where applicable, but should somebody be in that position, then they may want to diversify slightly so that gambling was then not their only source of income.

But as mentioned, at the time of writing I have not read a single entry online of anybody being in that position.

Conclusion on Tax Free Gambling Profits.

The tax laws in the UK mean you can gamble tax free, and you should have no concerns unless there is another change in the law, which is unlikely.

Enjoy your tax free winnings 🙂

With online gambling’s popularity on the increase, what is the tax impact for those who take it up professionally?

The UK Tax Position of the Professional Gambler

Essentially betting is “tax free” – the professional gambler is outside the scope of tax. This is confirmed in HMRCs Business Income Manual (BIM) at para 22015. The basic position is that betting and gambling, as such, do not constitute trading. Rowlatt J said in Graham v Green (1925) 9 TC 309:

“A bet is merely an irrational agreement that one person should pay another person on the happening of an event.”

Uk Gambling Tax Free 2019

This decision has stood the test of time. In an Australian case, Evans v FCT (1989) 20 ATC 4540, 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.”

Is spread betting tax free?

So is a sophisticated on-line gambler a “mere punter”? 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). The professional gambler is not taxable on the profits, nor does he or she receive tax relief for losses. But, the bookmaker organising the spread bet is taxable on his or her profits.

What guidance does HMRC give on gambling and tax?

The section on betting and gambling in HMRC’s Business Income Manual contains the following further guidance:

• What is a bet – BIM22016
• The professional gambler – BIM22017
• Organised activity – BIM22018
• Element of existing trade – BIM22019
• Spread betting – BIM22020

Is Professional Gambling Considered Trading for Tax Purposes?

Is an on-line professional gambler still just operating a system by habit or are they trading? Provided that the “pro-punter” is not carrying on an organised activity to make profits out of the gambling public, it is considered this will not amount to trading.

The betting exchanges have produced a number of sophisticated pro-punters who approach their work on a scientific, well-researched basis. This is not “irrational” but the profit is “tax free”. For tax purposes there is no distinction between recreational and non-recreational players. How does the pro-punter deal with the issues of tax compliance?

The safe answer has to be to make HMRC aware of the position. This can be done by simply writing to the pro-punter’s local tax office stating that he or she has income from gambling and to record the details each year on a tax return. It is also important to obtain clearance from HMRC via “Code of Practice 10”.

Why is Gambling “Tax-free”?

It is assumed that the simple answer is that HMRC could not cope with the tax claim for gambling losses! The sporting world involves a large amount of gambling at all levels. In practice, if HMRC tried to assess the “winners” to tax there would be a deluge of tax loss claims.

Gambling Tax Free Uk

Practical tax tip- Gambling

Uk Gambling Tax Free 2020

Keep a record of winnings in case evidence is required at a later stage. HMRC always need to verify sources of income and windfalls in an enquiry situation, so it is important to keep records to avoid any future problems over (say) the identification of any capital introduced in to a business.