• Is Gambling Income Taxable Uk Pension
• Is Gambling Income Taxable Uk Tax
• Is Gambling Income Taxable Uk Income
• Is Gambling Income Taxable Uk Pension

If an employer has a UK tax presence they must deduct and account to HMRC for the Income Tax and Class 1 National Insurance contributions due through the operation of PAYE, based on the best.

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. List of information about Gambling duties. Help us improve GOV.UK. To help us improve GOV.UK, we’d like to know more about your visit today. Gambling and betting was not taxed effectively in the UK for most of history. Unlicensed gambling was causing such a legal and moral problem to the Victorians that the parliament of the time issued the Gaming Act of 1845. This made a wager unenforceable by law and therefore rendered all contracts between bettor and bookie invalid. The first category is speculative in nature and similar to gambling activities. If you fall under this bracket any day trading profits are free from income tax, business tax, and capital gains tax. As you can probably imagine, falling into this category isn’t a walk in the park (more on that later).

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

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

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

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

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

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

If you’re the recipient of any kind of benefit, then you’re likely no stranger to having your income assessed.

This may be income from a part-time job, interest on savings or perhaps help from friends and family, all of which may cause your benefits to reduce if you go over a certain threshold.

The UK benefits system has a track record of making things complicated when it comes to assessing tax – something which they’re in the process of simplifying, with the introduction of the Universal Credit system back in 2013.

While employment and savings are all considerations for income, one thing that we may overlook is gambling winnings.

Gambling winnings and tax

First of all, it’s important to understand that gambling winnings are not taxed. No matter what size they are, from winning on a scratch card to taking home all the numbers on the lottery, the amount you win will always be the amount that goes into your bank.

What is taxable, however, is interest.

This means that if you were to suddenly receive a large amount of money into your bank account one day, any interest you received on that money would be taxed – therefore, it’s not the original sum which is taxed, but any additional earnings you get from it.

Gambling income and benefits

So, how exactly does this apply when it comes to benefits? We can keep in mind the same principles for benefits as we can tax and additional income.

Certain factors can affect your entitlement to benefits, just like certain factors can affect whether or not your money is taxed, e.g. if it is income tax on wages or tax on your savings’ interest.

Is Gambling Income Taxable Uk Pension

As the recipient of any benefit, you’re assessed based on your “capital”. That is to say, if you do have savings which one day go over a particular threshold, then you may lose your entitlement to some of your benefits as a result.

Housing benefit

Your “capital” is any savings or assets you may have. Currently, if you receive housing benefit, you are not eligible to receive it if your capital exceeds £16,000.

While you won’t be entitled to any housing benefits with a capital of more than £16,000, you should also be cautious of anything over £6,000. Your benefits will be reduced if you do have a higher capital than this.

There are exceptions to this, of course – for example, if your partner has a Pension Credit Guarantee, then the £16,000 threshold doesn’t apply. Similarly, if you are a pensioner, then the £6,000 capital figure is increased to £10,000.

So, if you do find yourself “in the money” one day, then you’ll have to let your local authority know so that they can re-adjust your housing benefit accordingly. You must declare this to avoid being convicted of fraud.

Regular income – affecting income support

While an occasional big win (that does not take you over a £6,000 capital) is unlikely to be highlighted with the Department for Work and Pensions, regular income could be a different story.

Indeed, you don’t have to declare your gambling winnings to the HMRC because they’re not taxed. However, the HMRC regularly share information with the Department for Work and Pensions (the department responsible for benefits) to prevent fraud.

This effectively means that you could be liable to produce bank statements if there is any suspicion of regular income that could be in violation of income support.

For example, if you take part in matched betting, where there is far more chance of a regular income (and far more propensity to lose money too – beware), then this may be assessed.

In this situation, it’s always best to be completely honest with whoever you’re claiming benefits from. It’s up to them ultimately whether they can class your earnings as capital or regular income.

For example, there have been cases of gamblers winning a significant sum, and the DWP categorising this into 12 monthly payments which could, therefore, be classed as regular income.

The difference in benefits

Not all benefits are the same, of course. Some benefits are means tested, which means that the DWP will assess your individual circumstances and look at your “capital” in order to make a decision on whether or not you are entitled to these benefits.

The current means-tested benefits are:

• Income-based Jobseeker’s Allowance

• Income-related Employment and Support Allowance

• Income Support

• Pension Credit

• Tax Credits (Child Tax Credit and Working Tax Credit)

• Housing Benefit

• Council Tax Support

• Social Fund (Sure Start Maternity Grant, Funeral Payment, Cold Weather Payments)

• Universal Credit

• Jobseekers’ Allowance

• Income Support.

Is Gambling Income Taxable Uk Tax

If you’re receiving non-means tested benefits, then it is far more likely that the DWP will take a lenient approach. However, the majority of non-means tested benefits concern those with disabilities, some of which could indeed affect our ability to gamble.

Is Gambling Income Taxable Uk Income

However, if you’re able to gamble lawfully and receive a non-means tested benefit, then this will have no effect.

Other non-means tested benefits include statutory benefits such as maternity or paternity leave – if you have time to make a big winning on a scratch card with a baby, then by all means, play away!

Abiding by the law

Benefit fraud is a very serious offence, but there’s no need to risk this by gambling irresponsibly and risking losing money you’re entitled to.

Is Gambling Income Taxable Uk Pension

In most cases, the DWP will fairly treat anybody who is upfront and honest about any additional earnings they may make from gambling.

It’s also wise not to rely on gambling as a source of regular income. Firstly, a regular income affects benefits, and additionally, there’s no guarantee that one good month’s winnings will be repeated the next month.

As with all gambling, it is most advisable to approach it as a leisurely pursuit – just make sure you declare winnings of over £6,000 if you do win big.