A thought-provoking question asked by one of our clients is whether professional gambling is a trade or not – and whether gambling winnings are taxable.
The answer to this question might surprise you. According to HMRC, and reinforced by a number of court cases, is the answer that gambling is not a taxable trade. This answer holds even for a professional gambler who spends a significant amount of time building up their expertise and honing their skills.
This view is confirmed in HMRC’s Business Income Manual where HMRC says that ‘the fact that a taxpayer has a system by which they place their bets, or that they are sufficiently successful to earn a living by gambling does not make their activities a trade’.
The only caveat to HMRC’s guidance is the possibility that some ‘professional gamblers’ do carry on a trade from rrelated activities, for example, where they receive appearance money for appearing on television programmes. In fact, a professional gambler has nothing to report to HMRC (unless he has other sources of income). However, we would still recommend keeping records of winnings (and losses) should you ever become the subject of an HMRC enquiry and be required to prove the source of your income. If you you have other sources of taxable income and file Self Assessment Tax Returns we recommend that you use the ‘Other Information’ space to disclose your non-taxable gambling winnings in order to make a full disclosure to HMRC each year.
Remember too that gambling winnings still potentially attract Inheritance Tax if you give them away or they form part of your estate when you die. Our trust and estates team can advise further on this.
Planning notes
This issue can also raise difficulties for a non-taxpayer. For example, it might be very difficult to obtain a mortgage or other type of loan from a mainstream financial lender.
If this is your only source of income you will not pay National Insurance (N.I.) Contributions and should therefore consider making voluntary N.I. Contributions in order to maintain your State Pension entitlement.
Gambling winnings in the UK are also tax-free regardless of whether it’s your main source of income or a simple hobby. Interestingly, the UK’s view is not common across the world and many other jurisdictions tax gambling winnings, so you should be aware of the tax rules in the country in which you gamble.
