• Uk Gambling Tax Revenue
• Gambling Uk Tax Free
• Gambling Tax Uk 2019
• Gambling Tax In Uk
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Those who gamble, especially those who are very new to it or, conversely, those that do it an awful lot, often wonder if there are any tax implications involved with gambling. The short, simple and wonderfully sweet answer is that no, there is no tax at all to pay on either gambling winnings or stakes in the UK (if you are not based in the UK please check your local jurisdiction).

This was not always the case, you might be unsurprised to hear, as the government is never one to miss a chance to squeeze an extra few quid out of us when they can. Betting shops were legalised as part of the liberal mood that swept the country during the 1960s but a tax was levied, either on the stake or winnings (as decided by the punter prior to bet placement). This was charged at 9% but was abolished by Gordon Brown in the March budget of 2001, with the changes coming into effect on January 1st 2002.

1. Liz Ritchie, of the Gambling with Lives charity, said gambling is a 'serious addiction and costs lives'. She added: 'There are 250-650 gambling-related suicides per year in the UK and suicides.
2. In 2002, the UK government was concerned the British gambling industry wasn’t going to be able to compete with the rise of online gambling sites in UK. This led the government to abolishing the tax on gambling for the players. As we can see today, the decision was a successful one. The UK gambling industry is still alive and well to this day.
3. UK Government revenue from gambling industry. In the UK, the gambling industry is huge. In 2017, government revenue, i.e., tax, from the gambling industry, reached £13.8 billion. Ten years ago, gambling laws in the UK were liberalized. Since then, tax revenue from gambling has risen by 65%. The Gambling Act 2005 came into force in 2007.

Taxing Offshore Betting Sites

Is Gambling Taxable In The UK? No, gambling is tax free in the UK. While players in some countries such as the USA, France, and Macau have to deal with gambling taxes between 1% and 25%, bettors in the United Kingdom have the privilege of keeping the entirety of their winnings.

The then Chancellor was concerned that the country was losing revenue – not to mention jobs – to offshore gambling sites which people could access via their phones or the internet. Many of the big UK brands had moved offshore where they could take bets without the punters being taxed and Brown’s move was designed to stop that. The tax on the gambler was replaced with a 15% levy on the gross profits of bookmakers and since that momentous day over 10 years ago there has been no tax at all for punters to pay no matter how much they win from gambling.

This has had many ramifications and one is the growth of financial betting as an alternative to conventional investment mechanisms, the former offering tax free winnings, the latter subject to standard tax laws. It has also made UK-based bookies and betting shops far more competitive and has been instrumental in the growth and success of the UK gambling industry.

Follow up legislation further strengthened the domestic market by levying the same 15% tax that UK-based companies face against those based offshore. Remote gambling operators with UK customers currently benefitting from their bases in offshore havens such as Gibraltar and the Isle of Man now have to pay 15% tax on their operating profits. It was estimated to raise around £300m annually for the government and came into force in December 2014.

FOBT’s Stakes Down, Online Taxes Increase to 21%

In 2019, and after a long drawn out battle in both the media and houses of commons, the maximum stake permitted on Fixed Odds Betting Terminals found in high street bookmakers was reduced to £2 – a huge cut when you consider the fact that the previous limit had been £100.

Whilst the cut in stake was primarily intended to help protect vunerable and problem gamblers it also had the knock on effect of reducing the tax revenue generated by the machines. To compensate for this the UK Government chose to increase the 15% tax rate to a whopping 21%.

Despite the increase, crucially, this has no real impact on us as punters. To go back to the very simple answer as the beginning of this piece – gambling profits and stakes in the UK are still totally tax free.

Totaling a taxpayer's Forms W-2G, Certain Gambling Winnings, for the year would seem to be the straightforward way to determine the amount of gambling winnings to report on a tax return. Forms W-2G, however, do not necessarily capture all of a taxpayer's gambling winnings and losses for the year. How are these amounts reported and substantiated on a tax return? Does the answer change if the taxpayer seeks to make a living as a poker player? Do states tax gambling differently?

There are many nuances and recent developments under federal and state tax laws about gambling and other similar activities. With proper recordkeeping and guidance, a taxpayer with gambling winnings may significantly reduce audit exposure.

Income and Permitted Deductions

Under Sec. 61(a), all income from whatever source derived is includible in a U.S. resident's gross income. Whether the gambling winnings are $5 or $500,000, all amounts are taxable.

A taxpayer may deduct losses from wagering transactions to the extent of gains from those transactions under Sec. 165(d). For amateur gamblers, gambling losses are reported as an itemized deduction on Schedule A, Itemized Deductions. The law is not as kind to nonresidents: While nonresidents must also include U.S.-source gambling winnings as income, they cannot deduct gambling losses against those winnings. Nonresidents whose gambling winnings are connected to a trade or business may deduct gambling losses to the extent of winnings, however, under Sec. 873.

Case law and IRS guidance have established that a taxpayer may determine gambling winnings and losses on a session basis.

Neither the Code nor the regulations define the term 'transactions' as stated in Sec. 165(d). Tax Court cases have recognized that gross income from slot machine transactions is determined on a session basis (see Shollenberger, T.C. Memo. 2009-306; LaPlante, T.C. Memo. 2009-226).

What Is a Session?

In 2008, the IRS Chief Counsel opined that a slot machine player recognizes a wagering gain or loss at the time she redeems her tokens because fluctuating wins and losses left in play are not accessions to wealth until the taxpayer can definitely calculate the amount realized (Advice Memorandum 2008-011). This method is also recognized in both Schollenberger and LaPlante, as a by-bet method would be unduly burdensome and unreasonable for taxpayers. To this end, the IRS issued Notice 2015-21, which provides taxpayers a proposed safe harbor to determine gains or losses from electronically tracked slot machine play.

Under Notice 2015-21, a taxpayer determines wagering gain or loss from electronically tracked slot machine play at the end of a single session of play, rather than on a by-bet basis. Electronically tracked slot machine play uses an electronic player system controlled by the gaming establishment—such as the use of a player's card—that records the amount a specific individual won and wagered on slot machine play. A single session of play begins when a taxpayer places a wager on a particular type of game and ends when the taxpayer completes his or her last wager on the same type of game before the end of the same calendar day.

A taxpayer recognizes a wagering gain if, at the end of a single session of play, the total dollar amount of payouts from electronically tracked slot machine play during that session exceeds the total dollar amount of wagers placed by the taxpayer on the electronically tracked slot machine play during that session. A taxpayer recognizes a wagering loss if, at the end of a single session of play, the total dollar amount of wagers placed by the taxpayer on electronically tracked slot machine play exceeds the total dollar amount of payouts from electronically tracked slot machine play during the session.

There is little to no guidance defining a session for other casino games, such as poker. Furthermore, because there are different poker game formats (cash and tournament) and game types (Texas hold 'em, pot limit Omaha, etc.), it is unclear whether the one-session-per-day analysis would apply to poker in general. A taxpayer who plays different types of poker games may have to record separate sessions for each type of poker game played each day.

In a 2015 Chief Counsel memorandum (CCM), the IRS concluded that a taxpayer's multiple buy-ins for the same poker tournament could not be aggregated for purposes of determining the reportable amount on a taxpayer's Form W-2G (CCM 20153601F). This analysis implies that the IRS may view each poker tournament buy-in as a separate gambling session. A key point leading to the conclusion was that the buy-ins were not identical because the tournament circumstances were different each time the taxpayer made an additional buy-in.

Requirement to Maintain Accurate Records

In Rev. Proc. 77-29, the IRS states that a taxpayer must keep an accurate diary or other similar record of all losses and winnings. According to Rev. Proc. 77-29, the diary should contain:

• The date and type of the specific wager or wagering activity;
• The name and address or location of the gambling establishment;
• The names of other persons present at the gambling establishment; and
• The amounts won or lost.

It is hard to believe the IRS would disallow a taxpayer's gambling loss deduction solely because the taxpayer did not write down in her diary the names of other persons at her blackjack table. The IRS does acknowledge that a taxpayer may prove winnings and losses with other documentation, such as statements of actual winnings from the gambling establishment.

Special Rules for Professional Gamblers

Uk Gambling Tax Revenue

The professional gambler reports gambling winnings and losses for federal purposes on Schedule C, Profit or Loss From Business. A professional gambler is viewed as engaged in the trade or business of gambling. To compute business income, the taxpayer may net all wagering activity but cannot report an overall wagering loss. In addition, the taxpayer may deduct 'ordinary and necessary' business expenses (expenses other than wagers) incurred in connection with the business.

Whether a gambler is an amateur or a professional for tax purposes is based on the 'facts and circumstances.' In Groetzinger, 480 U.S. 23 (1987), the Supreme Court established the professional gambler standard: 'If one's gambling activity is pursued full time, in good faith, and with regularity, to the production of income for a livelihood, and is not a mere hobby, it is a trade or business.' The burden of proof is on the professional gambler to prove this status.

Despite receiving other forms of income in 1978, Robert Groetzinger was held to be a professional gambler for the year because he spent 60 to 80 hours per week gambling at dog races. Gambling was his full-time job and livelihood. Notably, Groetzinger had a net gambling loss in 1978. Thus, actual profit is not a requirement for professional gambler status.

In addition to applying the standard established in Groetzinger, courts sometimes apply the following nonexhaustive nine-factor test in Regs. Sec. 1.183-2(b)(1) used to determine intent to make a profit under the hobby loss rules to decide whether a taxpayer is a professional gambler:

• Manner in which the taxpayer carries on the activity;
• The expertise of the taxpayer or his advisers;
• The time and effort the taxpayer expended in carrying on the activity;
• Expectation that assets used in the activity may appreciate in value;
• The taxpayer's success in carrying on other similar or dissimilar activities;
• The taxpayer's history of income or losses with respect to the activity;
• The amount of occasional profits, if any, that are earned;
• The financial status of the taxpayer; and
• Elements of personal pleasure or recreation.

What if a professional gambler's ordinary and necessary business expenses exceed the net gambling winnings for the year? In Mayo, 136 T.C. 81 (2011), the court held the limitation on deducting gambling losses does not apply to ordinary and necessary business expenses incurred in connection with the trade or business of gambling. Therefore, a professional gambler may report a business loss, which may be applied against other income from the year.

Limitations on Loss Deductions

Some states do not permit amateur taxpayers to deduct gambling losses as an itemized deduction at all. These states include Connecticut, Illinois, Indiana, Kansas, Massachusetts, Michigan, North Carolina, Ohio, Rhode Island, West Virginia, and Wisconsin. A taxpayer who has $50,000 of gambling winnings and $50,000 of gambling losses in Wisconsin for a tax year, for example, must pay Wisconsin income tax on the $50,000 of gambling winnings despite breaking even from gambling for the year.

Because professional gamblers may deduct gambling losses for state income tax purposes, some state tax agencies aggressively challenge a taxpayer's professional gambler status. A taxpayer whose professional gambler status is disallowed could face a particularly egregious state income tax deficiency if the taxpayer reported on Schedule C the total of Forms W-2G instead of using the session method under Notice 2015-21. In this situation, the state may be willing to consider adjusting the assessment based on the session method if the taxpayer provides sufficient documentation.

Changes Ahead Likely

Gambling Uk Tax Free

Tax laws addressing gambling and other similar activities will continue to evolve as new types of games and technologies emerge. Some related tax issues that will come to the forefront include session treatment for online gambling activity and whether daily fantasy sports are considered gambling. As more and more states legalize online gambling and daily fantasy sports, Congress or the IRS will have no choice but to address these issues.

EditorNotes

Gambling Tax Uk 2019

Mark Heroux is a principal with the Tax Services Group at Baker Tilly Virchow Krause LLP in Chicago.

Gambling Tax In Uk

For additional information about these items, contact Mr. Heroux at 312-729-8005 or mark.heroux@bakertilly.com.

Gambling Uk Tax Records

Unless otherwise noted, contributors are members of or associated with Baker Tilly Virchow Krause LLP.