Do I have to pay tax on online casino winnings?

In short, no. In an unusual departure from the normal behaviour of the Treasury income from gambling is entirely tax-free. Indeed, gambling is a rare example of a tax being abolished.

A brief history of tax and gambling

Like so much of English history, gambling is tied up with social and technological change. For most of English history gambling has been very heavily regulated and, when allowed, a pursuit that was reserved for those of a higher social status. The first law regulating gambling was passed by Richard I in 1190, limiting gambling to the nobility, and placing an upper limit of 20 shillings on the stakes.Even in more modern times, the social division remained. While high stakes games might be played in the gentlemen’s clubs on Pall Mall, working-class pubs were limited to small stakes on games like cribbage or shove-halfpenny. As is often the case, however, people’s behaviour could not be legislated and illegal betting forced governments, very gradually, to legalise gambling.The 1928 creation of the Racehorse Betting Control Board, later known as the Horserace Totaliser board or ‘Tote’, by Winston Churchill intended to combat the growth of illegal bookmakers. It was, essentially, a state-owned bookie that directed its profits into horse racing and the Treasury.It was the Gaming and Betting Act 1960 that first took gambling, if not into respectability, at least onto the high street. For the first time there were non-sporting venues where bets could be placed. This marked the start of a regulated industry and, inevitably, the start of taxation.Bookies were charged a levy, which was passed onto the customer as a betting tax. The tax, which was 9% throughout its existence, was paid on either the stake or any winnings. Punters had to choose when they would pay when placing their bets, with most opting to pay a smaller amount on the stake over losing 9% of their winnings.

Tax-free gambling, for some

In the 2001 Budget Gordon Brown, the Chancellor, recognised that the rise of the offshore betting, facilitated by the internet, was having an impact on the Government’s coffers. While punters might not have been deliberately avoiding tax, this new phenomenon was having the same effect. These new bookies and casinos were more convenient, no longer requiring a trip to a physical bookmaker, but could also afford better odds and offer better deals because they were not paying as much tax.The betting tax was abolished. Placing a bet now meant that you could bet the full stake and take home all the winnings, totally tax-free. However, while the abolition could be seen as a generous gesture by the punter, the taxman is not a charity and it was replaced by a 15% duty on the operator’s profits.This was not entirely successful. The tax was paid at what is termed the ‘point of supply’. An online casino registered in the UK would have to pay the 15% duty. But by simply relocating their head office they could avoid the duty entirely while still providing the same service. Gibraltar became one of the most popular destinations, where the same duty was just 1%.The government moved to close this loophole in 2014, applying the duty to profits based on the ‘point of consumption’. Where the casino was legally based was irrelevant, it could be on the moon, but it would have to pay the 15% duty on any profits made from a UK-based punter. This was made enforceable by the Gambling Act 2005 which had created the UK Gambling Commission to regulate the sector. If you did not pay the duty, you would simply not be licensed for UK operation.The Remote Gaming Duty remains in place today. It was increased in the 2018 Budget by Philip Hammond, so casinos now pay a 21% duty but otherwise operates in the same way, applying to profits made from UK gamblers.Similar duties are in place for physical casinos, although they operate on a scale with the rate varying depending on the types of games offered, while the Remote Gaming Duty is a single, fixed, rate. Regardless of the games on offer, whether or not they are games of chance or have an element of skill, that same chunk of your losses will be going to the Treasury.In 2019-20 financial year the government received just over £3 billion in revenues from gambling, this has more than doubled since the abolition of betting tax and is nearly £1 billion more than 2014 when the loophole on the casino’s registration was closed.

The impact on the gambler

This might seem like unalloyed good news for the gambler. They are enjoying one of the few parts of life that doesn’t incur a tax. And for most people that is all they need to consider. However, there are some impacts on the gambler. Although they do not need to worry about tax, they are affected, even if they don’t notice it.The main effect is that gambling sites cannot afford to be as generous when they are paying large amounts in taxes. The difference between paying 21% in the UK and 1% in Gibraltar is significant and that difference has to be covered. Casinos can, of course, opt to be less profitable. This has, to some extent, happened with operators absorbing some of the tax hit from their bottom-line.In practice the casino operators have funded the tax from both their profits and from customers. This means that operating budgets like promotions are cut, so while there will still be offers for new and existing customers these will be less generous than they might otherwise have been. And it means that the games themselves will not be as generous. The odds on traditional bets and the returns on other games will be lower.An example might be online slots. These will feature a ‘return-to-player’, or RTP, rate. This is the proportion of their stake the player might expect to win back over a prolonged period of play. These are typically over 90%, so a player staking £100 could expect at least £90 in winnings. However, by adjusting these down, even marginally, casinos can increase their profits significantly by making a little more each time off many players. While players might not notice that £1 in £100 change, it helps the casino pay the tax man.

What gamblers need to do

For most online gamblers they do not need to think about the gaming duties. These will be calculated and paid by the casino. There are some issues and situations that might change this.Interestingly professional gamblers are also exempt from any taxation. Making it a career that’s unique in being tax-free. This may be partly down to a legacy of the paternalist attitude, with gambling seen more as a habit and not a trade for tax purposes. There are, however, practical considerations that make taxation of professional gamblers difficult. There are problems in even defining a professional gambler and separating them from casual gamblers or even the infrequent gambler who strikes lucky. That’s before the tricky matter of a tax return, where stakes would presumably become expenses and losses could be offset against tax liabilities.However, while the government has taken the pragmatic approach it might still be worth declaring significant gambling income — which can be done on a self-assessment return without paying tax — to offer protection should HMRC, or any other public body, show an interest in a lavish, seemingly untaxed, lifestyle.You might also need to consider the tax implications if you gamble abroad. The UK is relatively unusual in not taxing customers. If you gamble elsewhere you might expect money to be deducted from your winnings, while other countries would expect winnings to be declared for tax. There may also be limits on how much cash you can take out (or into) a country. While gambling might be straightforward in the UK, don’t assume this is the same elsewhere.Finally, although your winnings are not taxed, you might have to think about tax depending on what you do with them. For example, you might need to consider the tax implications of gifting a big win to a loved one. Or whether your winnings change your inheritance tax situation in the event of your death. As a general rule in the UK you can give up to £3,000 a year without either party needing to worry about tax.

The bottom line

When tax is one of life’s certainties — income tax on what you earn, VAT on what you buy, duty on alcohol and tobacco — it seems rare to find a tax-free activity. But no matter how closely you look at your online statement you won’t find a reference to paying a penny in tax.This doesn’t mean that there is no tax, just that it’s paid by the casino operator. As a result your offers might not be as generous and the pay-outs marginally less frequent. For most gamblers, though, this will not be an issue. The only time you might have to think about tax is in the event of a big win, when taking professional advice might be advisable, but that is not a bad position to be in.If you are gaming at an online casino the best advice is to enjoy that rare time the taxman isn’t looking over your shoulder and enjoy the experience.

John Delaney - Chief Editor

John Delaney is a well regarded expert in the online casinos within the UK. After finishing his degree in Computer Science at the Univesity of Manchester he worked with the biggest names in the casino industry including Entain (previously GVC) and the 888 group.