Even in the midst of a global pandemic, the UK gambling industry continues to bring home the bacon. Over the years, the quality of the games has improved tenfold, and thanks to strict regulation the games are regularly audited for fair gaming and the gambling sites are secure and well-managed. People from all walks of life have turned to online gambling both as a means of entertainment during lockdowns and as a possible side hustle to make a little extra money. And for those willing to take the risk on slot games, card games, or horse races, the potential rewards are not only exciting but they’re also tax-free.
Is Gambling Tax-Free Everywhere?
One of the most common gambling questions we get asked is ‘Do I have to pay taxes on my winnings?’. The answer depends on where you live. If you live in Finland (click this to read more on Finland’s growing gambling scene), Canada, or Australia, for example, then you are entitled to tax-free winnings, but players in the USA, France, or Spain are not so lucky. Each country has its own rules regarding tax, and these rules are subject to change. You will need to keep abreast of your own country’s tax laws to ensure that you stay on the right side of the law. What we can say for certain is that in the UK all winnings are tax-free, and that includes lottery wins, bingo wins, and scratch card wins. It is unlikely that the UK stance on tax-free winnings will change any time soon.
2005 UK Gambling Act
The UK government rakes in a small fortune every year through gambling tax thanks to the changes that were brought about by Gordon Brown. Many of you may be too young to remember this, but the UK used to tax players on their winnings. When the 1960 Gambling Act was introduced, gamblers were expected to pay 9% tax on all their winnings. 9% may sound like a small percentage, but any gambler will attest to the fact that losing 9% of a hard-won jackpot is painful. Things continued on this way until 2001. Gordon Brown got rid of the 9% tax and instead decided to lay the burden of taxation on the shoulders of the bookmaker rather than the punter. From that point on, bookies were required to pay 15% tax on their (gross) profits. These changes became known as the 2005 Gambling Act.
Bookmakers were, unsurprisingly, less than impressed by this change of tack. They were quick to find a loophole. The 15% gambling tax was charged at the point of supply, meaning that if you placed a bet at a bookie in Bournemouth, for example, then said bookie would be charged 15% tax on their profit. However, if you happened to reside in Bournemouth but you placed a bet through an online bookmaker that was located outside of the UK, then said bookie would not have to pay UK taxes. In order to avoid being liable for UK tax, gambling establishments simply moved their online operations overseas. Gibraltar, for example, was an excellent option because gambling companies were only charged 1% tax on profits.
The 2014 Amendment
In 2001, online gambling was still somewhat in its infancy. But it didn’t take long for that to change and for Gordon Brown to realize his mistake. Gambling establishments still registered in the UK were unable to compete with online casinos registered overseas that could more readily afford to offer bigger and better bonuses, jackpots, and rewards programs. And it was soon clear that the UK government was losing out on what was potentially a large amount of tax revenue from an ever-growing chunk of the online gambling pie.
In 2014, an amendment was made to the 2005 Gambling Act. From that point on, the 15% tax would be charged at the point of consumption. This meant that if a UK player made a bet with a gambling company based in Gibraltar, then said the company would have to pay UK tax. Not only that, any gambling company catering to UK players would only be allowed to do so if they held a UK gambling license, and in order to get a license, they’d have to pay tax. Basically, it is now illegal for any online casino to accept UK players unless said casino holds a gambling license from the UK Gambling Commission (UKGC) – no matter where they base their operations.
Reaping the Rewards
You would think that these changes would result in UK players being deprived of choice as to where they placed bets. But in truth, UK players actually benefited hugely from the 2014 amendment, as did the UK gambling industry. UK sites experienced a boom in revenue, and players benefited from better bonus offers, better games, and tighter security measures. The UKGC is one of the strictest regulators in the world, which means that casinos with a UKGC license are amongst the most trustworthy casinos on the market. Players from all over the world flock to these sites because they know that they are required to meet extremely high standards pertaining to online security, fair gaming, licensed software providers, and reliable payment methods.
The UK’s handling of the whole question of gambling, both online and offline, is often held up as a shining example of how a country can benefit from gambling while at the same time protecting its citizens from the pitfalls of gambling. Of course, there are many groups within the UK that campaign to make gambling laws even tighter – particularly when it comes to protecting vulnerable and underage gamblers. The UKGC, in response, works closely with lawmakers, campaigners, and gambling companies to increase those protections. And as something of a concession, profits from the national lottery, for example, go towards charitable causes. But it is unlikely that the UK government will ever revert back to the days when gambling was illegal, or that they will revert back tax gamblers on their good fortune. There is simply too much money to be made.