Are Gambling Winnings Earned Income Uk

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If the gambling activity can be considered as a hobby, the income is not taxable. If the gambling is carried out in businesslike behaviour, then the income is taxable and losses deductible. Making approximately $50 million in sports lottery bets and earning a profit of $5 million was not considered businesslike behaviour in Leblanc v. Gambling wasn’t always tax-free however—check out the section below for a summary of the history of gambling and taxes in the UK. History of Gambling Laws Betting shows were first legalised with the 1960 Betting and Gaming Act, in which a tax was levied either on stakes or winnings in high street betting shops.

Individuals and entities such as foreign corporations are still subject to US tax at a flat rate of 30% on income received from US sources, even if they are not US citizens or residents. A taxpayer may have the opportunity to reduce this fixed tax rate by filing Form W8BEN if his/her country of residence has an existing Income Tax Treaty negotiated with the United States.

Form W8BEN, US tax return and Foreign Nationals

This type of non-resident tax is withheld by the source of the income, or payor. The payor, also referred to as the withholding agent, has the responsibility of deducting and withholding that tax from your income and paying it to the Internal Revenue Service (IRS). If the withholding agent fails to meet this requirement, they may be held personally liable to pay the tax owed by you. This is the reason that these agents take every precaution to ensure that their obligation is met. One step in this process is to obtain a certification from the payee as to whether or not they are a US resident or citizen or a foreign individual subject to this special tax rate.

Permanent residents and citizens are not subject to the 30% (or lower treaty rate) withholding tax that foreign individuals are required to pay. Instead, foreign individuals must complete a form in the Form W-8BEN series, such as Form W-8BEN. US taxpayers use Form W-9 to file theirs. Form W-8BEN is also considered if Form 8833 must be filed.

The payor of the earned income is informed of the filing status of the individual when they have a W-8BEN on file. This fact will alert them to take out the appropriate withholding tax from the payee’s salary. When the payee is a US taxpayer, they will complete a W-9 and the payor will know that the 30% withholding tax rate does not apply.

What Income is Subject to 30% Withholding

A foreign individual will be subject to the 30% tax rate on any income they receive from the following US sources:

  • Interest – this includes certain original issue discount (OID);
  • Dividends;
  • Rental income;
  • Royalties;
  • Premiums;
  • Annuities;
  • Compensation for, or in expectation of, services performed;
  • Substitute payments in a securities lending transaction and
  • Other fixed or determinable annual or periodical gains – or FDAP income- profits, or income.

This mandatory withholding tax is applied to the gross earnings of the foreign individual or entity.

There are some types of income earned in the US that will not be subject to this 30% withholding tax. Some of examples of these include:

  • Broker proceeds such as the sale of US stocks or securities;
  • Short term OID of 183 days or less;
  • Bank deposit interest;
  • Interest, dividends, rents or royalties sourced from a foreign payor and;
  • Proceeds from a wager placed by a non-resident alien individual in the games of blackjack, baccarat, craps, roulette, or big-6 wheel. You can find more information on US tax assessed on gambling winnings of a foreign individual in another blog post.

You still may need to submit Form W-8BEN to claim an exception from any US information reporting and the back-up withholding for these types of US source income.

US Withholding Agents

The payors of the income to foreign individuals or entities, or the US withholding agents, are required to withhold the tax from all income paid to them. This tax must be withheld at the source of income before any payment can be made to the foreign person.

It is the withholding agent who is held responsible to ensure that the proper withholding tax is upheld, resulting in most of these payors being extremely diligent in making sure that it takes place. Otherwise, the alternative could be being held responsible for paying any taxes which were not withheld. This makes it highly unlikely that a foreign individual could avoid having to pay the stipulated withholding tax.

Reduced Tax Withholding With the Form W8BEN

A foreign person earning income in the US can have the 30% withholding rate reduced based on any applicable tax treaty for the foreign payee – the foreign individual who is receiving the income.

In order for the payee to claim a deduction under the rules of a relevant tax treaty, the withholding agent must first receive a Form W-8BEN from the foreign individual. It is only then that they can grant the payee the withholding reduction on the earned income outlined in the tax treaty.

Form W-8BEN must be signed and dated by the individual earning the income in question, or by an authorized agent as evidenced by a completed power of attorney form. IRS Form 2848, Power of Attorney, is sufficient to fulfill this purpose.

Related Forms to the Form W-8BEN Series

Foreign individuals who are earning a US income will generally be required to complete Form W-8BEN but there are other forms in the series, W-8BEN-E, W-8ECI, W-8-EXP and W-8IMY. These forms may be necessary based on the circumstance of the payee, such as if they are an individual or an entity.

A US taxpayer is not required to complete any of the forms found in the W8 series. They instead must complete Form W-9 in order to avoid having to pay any type of mandatory withholding tax.

Claiming Tax Treaty Benefits with the Form W8BEN

In the event that there is a tax treaty between the United States and your country of residence that provides an exemption from, or reduction of, withholding for certain items of income it is your responsibility to report this to the source of your income. All foreign individuals for whom a treaty applies should notify the payor of their foreign status in order to claim the benefits that they are entitled to. In most cases you will do this by filing Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Withholding and Reporting (Individuals) with the withholding agent.

W8-BEN Exemption from Withholding

A reduced rate of withholding tax will apply to a foreign individual that provides the payor with a Form W-8BEN claiming a reduced rate of withholding tax under an income tax treaty. The payee will be required to provide a US Taxpayer Identification Number (TIN) except where the income received is derived from certain marketable securities. They must also certify that:

  • They are a resident of a treaty country;
  • They are the beneficial owner of the income;
  • If it is an entity, that it derives its income within the meaning of Section 894 of the Internal Revenue Code which states that it is not fiscally transparent; and
  • That it meets any limitation on benefits provisions contained in the treaty if applicable.

Limitation on Benefits Provisions

Limitations on benefits provisions will generally prohibit residents from third countries from obtaining treaty benefits. In other words, a foreign corporation should not be entitled to a reduced rate of withholding tax on its earnings unless a minimum percentage of its owners are citizens or residents of the treaty country or United States.

Where to Send the Form W8-BEN

The Form W8BEN must be presented to the withholding agent or payor in order to claim a reduced rate of withholding tax. It should not be sent directly to the IRS.

How long is the Form W-8BEN Valid?

Income

It is important that the Form W-8BENBEN be kept up to date in order to avoid having tax wrongfully withheld from your income. Recovering wrongfully withheld taxes from the IRS is a time consuming and costly process.

A Form W8BEN that is provided without a valid US TIN will remain in effect from the date that the form was signed until the last day of the third succeeding year unless a change in your circumstances makes any information on the form incorrect. Monitoring the expiration date of your forms is important to ensure that you are not wrongfully taxed on your earnings. If so, your only recourse will be to file a tax return and wait to receive a refund from the IRS.

A Form W8BEN that is filed with a US TIN will remain active until a change in your circumstances makes any of the information on the form incorrect. This is provided that the withholding agent reports on Form 1042-S for at least one payment made annually to the beneficial owner.

Do you have more questions about the ways to minimize US expat taxes?

Our firm is committed to meeting the unique needs of each individual client, understanding that every tax situation is different, necessitating a personal approach in order to achieve realistic and effective solutions. For more information, please contact Artio Partners.

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If you’ve ever won a jackpot through bingo, slots or the lottery, you might have wondered if your winnings are taxable...

If you find yourself lucky enough to win big, do you have to declare it and pay taxes? If that thought has ever crossed your mind, you’re in luck because BingoPort has you covered. We’ve put together a guide that will answer whether your winnings really are taxable, a brief history of gambling laws and a look at how this might impact you.

So, if you’ve bagged yourself a big jackpot, congratulations! If you’re just here for the information, don’t worry—we’re sure your time will come someday.

Are Bingo Winnings Taxable?

The short answer is no—your gambling winnings aren’t taxable, at least in the UK. Here you won’t have to pay taxes on any of your winnings or stakes. It doesn’t matter if you’ve won £100 or £1 million. This applies to all types of gambling—from bingo, to slots, to lotteries, and even horse racing. So if you win big, you can rest assured knowing that you can spend your money in whatever way you’d like.

Depending on the site you’re using, your winnings will either be paid to you in one lump sum, or as a certain amount each month. If you’ve won recently, or you frequent a particular site, casino or betting brand, you should check their Terms and Conditions—this will lay out everything you need to know should your lucky day come.

If you don’t live in the UK your winnings might be subject to a tax, so it’s important that you check in advance. For example:

  • France has a 2% tax on poker cash pots.
  • In Spain, you need to declare winnings as income for taxation.
  • The Netherlands has a 29% tax if you win more than €454 in the lottery.

If you’re a UK citizen and you find yourself gambling abroad, you generally won’t need to worry about taxes. Most countries have treaties with the UK, so you won’t be subject to their tax requirements.

Gambling wasn’t always tax-free however—check out the section below for a summary of the history of gambling and taxes in the UK.

History of Gambling Laws

Betting shows were first legalised with the 1960 Betting and Gaming Act, in which a tax was levied either on stakes or winnings in high street betting shops. This was charged at a whopping 9% for punters. It was abolished by Gordon Brown in his March budget of 2001.

Are Gambling Winnings Earned Income Uk Calculator

This tax on gamblers themselves was replaced with a 15% tax on bookmakers and their gross profits at point of supply instead. This ‘point of supply’ basis meant that if a bookmaker wasn’t based in the UK, they weren’t liable however. This was a pressing concern for Brown, who feared that the UK was losing revenue to offshore gambling sites.

In fact, more and more bookmakers moved their online operations offshore where they would only have to pay the local tax rate on profits—this was capped at 1% in Gibraltar!

This changed with an amendment to the 2005 Gambling Act in 2014. From this point, the tax was changed to 15% on all gross profits at point of consumption—including offshore companies. This meant that gambling operators in Gibraltar and the Isle of Man for example, were now obliged to pay tax in order to obtain a gambling licence. This amendment essentially made it illegal to operate in the UK without a UK gambling licence.

This had a huge impact in making UK-based bookies and betting shops more competitive—increasing the growth and success of the gambling industry in the UK.

So, Why Aren't They Taxable?

To put it simply, it’s just easier for everyone involved to leave winnings untaxed. For example, if people are paying taxes on their winnings just like businesses do, then it would potentially be possible to claim back losses on tax returns. As you can imagine, this would be a nightmare, especially considering the fact that most people lose when it comes to gambling. After all, we all know what the 10 stages of losing at bingo are like!

Who Exactly Pays The Tax?

The casinos and bookmakers are the ones now paying the tax—this is the way they contribute to the UK’s economy. There are a variety of different taxes and gambling duties:

  • General betting duty
  • Bingo duty
  • Machine games duty
  • Lottery duty
  • Gaming duty
  • Remote betting duty

Before you start thinking about how tough it must be for gambling businesses, or how great it might be for you, bear in mind that they do pass these costs on to you in some way. For example, some online gambling sites have high wagering requirements or lower odds.

What If You're A Professional Gambler?

When we say ‘professional gambler’, we mean someone who essentially uses gambling as their main source of income. But even if this is the case and you are a professional gambler, the answer is still no—your winnings are not taxable.

This is backed up by the HMRC’s Business Income Manual at BIM22015. Their position is that betting and gambling don’t constitute trading:

“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”.

Gambling winnings, therefore, remain tax-free, regardless of whether it’s your main source of income or a simple hobby. An example of this goes back as far as 1925, in which a man named Alexander Graham was taxed by Inland Revenue. Graham made a living out of betting on horses, so Inland Revenue claimed £300 from him under the 1918 Income Tax Act. This case went to court, where Graham’s lawyers argued that betting on horses couldn’t be considered a trade. The judge eventually ruled that you can’t tax “habit”.

Are Gambling Winnings Earned Income Uk Tax

That’s not to say that professional gamblers can’t ever be subject to tax. It can get a little bit complicated. For example, if a professional gambler is being paid an appearance fee for playing at a particular tournament, then this would be a type of income that would be liable for tax.

So, I Don't Have To Worry At All Then?

While your winnings aren’t taxable by any gambling laws, that doesn’t mean you don’t have to worry. After all, other taxes may still be applicable.

A problem that many lottery winners have is extra tax—particularly on the ‘bigger’ wins. Any income that you generate from your winnings could be subject to income tax—for example, income earned through investments would be subject to a capital gains tax at 18%! And that’s not all—your winnings might even be liable to an inheritance tax when you die.

An inheritance tax is levied on property or cash acquired by a gift or inheritance. The threshold for this tax is £325,000, so if your ‘estate’ is worth more than that, you’re looking at a 40% tax. While you can give your money away to people or charities, it’s still liable should you die within 7 years of the gift.

You can give away £3,000 each year tax-free to any one person, or £250 as a gift to someone as long as they’re not gifted any further. If you give more than this away and you die, it will be liable to this tax. If you live longer than the allotted 7 years, it will be exempt from the inheritance tax.

If you do end up winning big—whether it’s through bingo, the lottery or a casino—you should definitely look to a financial advisor for help on how to invest your money and how to protect it.

Is Gambling Winnings Earned Income

Before going out to buy your lottery tickets for the week, find out if the lottery is worth playing.

Conclusion

Well, there you have it. If you live in the UK, our tax laws mean that you can gamble tax-free, without a single worry. Generally speaking, it isn’t very likely that this will ever change—taxing gambling winnings will never be viable for the UK. After all, if you tax the income or profit made from an activity, you have to make allowances for any losses made from the same activity.

Now you know that, you can keep playing bingo without a care in the world!

Feeling lucky?Why not try one of BingoPort’s recommended bingo sites like Gala Bingo?