Professional Gambler & Income Tax

[MikeWW]

unfortunately this is just hypothetical, and does not apply to me!

If someone was a professional gambler i.e. they made a *living* from betting on horse races, and the profits they made from simply betting on horses was their only income; would this "profit" be liable for income tax (or any other tax?)

afaik, all betting wins (from horse racing anyhow) in the uk are not liable for any income tax (not matter how large - I think).

[accountant@uktaxshop]

Mike,

Income taxes do not apply to gambling winnings; otherwise the IR would have to give an allowance on the losses, which as we all know is going to be the bigger number!

However if your hypothetical gambler had a trade, ie was selling tips or acting as a bookkeeper, this would be liable to normal taxes.

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

[MikeWW]

If wonder if the same would apply in the Republic of Ireland, or other european countries?

I would expect most tax authorities in other EU countries would also prefer not to charge income tax as an allowance would have to be given on losses.

[belsizepark]

This is just a comment because although I am sure James is accurate, I am slightly suprised. Firstly in the USA gambling winnings are taxable. (For example if someone goes to Las Vegas and is am American tax payer and wins a poker tournament, the casino has to withhold tax)

My understanding of the situation was as follows. If someone was an occasional gambler, gambling is not their main profession or a won the lottery etc then the winnings are non taxable, however if someone is a "professional gambler" then the situation is different.

A difference arises where the situation comes from a game where an element of skill is involved as opposed to pure luck where unlike James's comment - it is not necessary that the losses always outweigh the gains.

To give an example, imagine a chess grandmaster who plays chess for money against opponents who are much weaker. The opponents may be "mug punters" but for the chess grandmaster he is playing a game where he is favourite and could well win a significant amount of money. The same applies to other games of skill such as poker. (I am not sure about horse racing because historically there was a seperate betting tax - not so sure now)

In this instance the gambler i.e. the professional poker player who regularly wins and has poker winnings as his/her sole source of income, my understaning is that those winnings are taxable. Losses can be offset against wins in the same trade.

If that person had a full time job and paid tax through PAYE system (schedule E?) and also had gambling losses then those losses would not be offsettable against earnings from their job. If the person had gambling wins, then it would be a fair argument that the wins are non taxable as the gambling is not their full time profession but only a hobby.

The above case however is not the question. The question is based on gambling wins being their only souce of income.

I am not entirely sure as it is a long time ago that I practised as a chartered accountant and havent for years but I am quite sure that the question of a professional gambler was one the sort of question that came up in the multiple choice exams of my tax papers when I was a chartered accountancy student. It is my recollection that a professional gambler who has no other source of income must declare winnings as taxable. Expenses such as travelling to competitions etc are an allowable business expense deductible against gambling income.

Clearly it is quite easy for a professional gambler to cheat the inland revenue by pretending to have huge losses against the wins but here we are not talking about whether gamblers in practice declare their winnings but the theory.

Now before someone gets an idea like I had on inheritence tax. Imagine you have an elderly grandfather who is concerned about inheritence tax. I was told that he could not avoid inheritence tax on his estate by gambling on the toss of a coin with yourself his whole estate and losing. Nice idea but I was informed that the revenue would not allow it ggggrrrrrrrrr...

I could of course be very wrong about all of this and I apologize to James if he is accurate and i am talking comlete nonsense... james clearly does tax stuff for a living and if I was a betting man would guess he knows an awful lot more about tax than I do..

Have a nice day...

Belsizepark

[MikeWW]

thanks Belsizepark.

I gather from your message that you're in the USA (maybe I'm wrong).

As far as I know in Britain winnings made by professional gamblers are not taxable and do not constitute a trade for tax purposes. By
“professional gamblers” I mean those who place bets with bookmakers (not bookmakers themselves, or those who provide tipping services etc).

As far as I'm aware, this is well established and derives from the 1925 case of Graham v Green where a person lived by winning on horses, was assessed for tax but won on appeal.

A similar case is Down v Compston in 1937 where a golf pro bet regularly on games in which he played. It was held that his winnings were not taxable, again on appeal.

Some have suggested that the courts which made these decisions did so on the pragmatic ground that most gamblers lose, and that therefore to tax winners would require that losers could claim the losses.

Of course, the overall amount lost (by punters) far exceeds that which is won!

I would also just like to add the caveat that I too could be completely wrong about this (though I'm reasonably sure I'm not).

From the looks of things, if someone were a professional gambler, they would be better off being resident in the UK!

[belsizepark]

I take your word for it Mike WW. I may have taken my chartered accountacy exams a long time ago and passed at frst attempt, but it was not as long ago as 1925 or 1937!!

Fortunately you don't have to get 100% to pass!

I appreciate the references to the cases.

For personal interest in this matter, have you any idea where I may be able to see on the internet the details of these cases.

Regards and thanks once again

belsizepark

[MikeWW]

there's a very minor mention of the 1925 case in this document; about 1/4 way down the page.

clubs.law.uwo.ca/SUMMARIES/documents/incometax_223_edgar.doc

Though if you think we're wrong in thinking that there is no UK income tax charged to pro gamblers (or any other post winnings tax) , please post it. It's just an interesting topic.

[mary2002@imageirelan]

Would a professional gambler not be taxed under schedule D ?

[belsizepark]

Thanks Mike WW

I find a couple of things interesting about that article. The first is the next case mentioned i that document as follows:-

Walker v. M.N.R. [1951] Exch. Ct.
Facts:
• farmer who attended horse races, earnings from owning horses and gained through betting
Issue:
• do gambling activities constitute a business?
Held:
• crucial point is was he betting for a hobby, pure amusement or systematically carrying on with a view to making money?
• Factors are he had an interest in several race horsed, had inside information from jockeys etc., for 10yrs he systematically attended all races, this constitutes a business or calling and monies are therefore taxable



What is also interesting is in the Graham v Green case the argument was that whilst he was betting regularly it was with a bookmaker and a "habit" and not a business like a bookmaker and therefore non taxable.


My question is then what would be the situation of a proffesional poker player (I have a friend who is precisely that) . They do not bet with bookmakers but in his case he could spend up to say 60 hours a week playing poker in a casino and makes a lot more money out of it than your average tax consultant especially if it is tax free. The question is therefore are his earnings tax free??

My initial inclination would be in line with Mary's point that his "earnings" from playing poker would be taxable under Schedule D.

If all the points in Graham v Green can be applied the answer would be no but if we look at another case mentioned in that article:-

MNR vs Harry Edgar Morden

it was held:-

Held:
• to be taxable the gambling gain must be derived from carrying on a “business”
• casual winnings or occasional race bets are not subject to tax
• test is to look at intention, to conduct enterprise of a commercial character or to entertain himself (Lala Indra Sen)
• here no evidence that during years in question it was of commercial character
• while his bets were high sometimes and gains substantial no evidence of carrying on a business (was a hobby)
• appeal dismissed


In this case the facts included the following:-

• his gambling activities up to 1948 were so organized and occupied that if continued through years in question it would have been income from a business
• submitted that in years in question his gambling was only occasional and nothing more than hobby


Now apparantly also that article I read the following:-
• case law has established that it [a business] is an organized activity carried on with reasonable expectation of profit


Consequently if someone is playing poker 60 hours a week over an extended period of time with a reasonable expectation of profit.. is it taxable??

My friend thinks it isn't and does not declare his winnings. He is however intereste to know if he is breaking the law.

I would be interested in reading the details of any further cases on professional gamblers...

Regards and thanksto everyone who is contributing here...

Belsizepark

[MikeWW]

You said he makes a lot more money out of it than your average tax consultant.

So, we're talking more than the average *winning* punter who might (at best) make a few hundred pounds in the year! btw, does he give lessons!

Back to the point...

My perspective on this is that gambling wins were always all tax-free, except where it could easily be said that the gambling wins formed part of the person's regular business.

What I mean by this is this. I remember reading about a case (I'll see if I can dig up the name) of a man who was the *owner* of a casino, but he also played cards at one of his own tables in his own casino. The profits he made from gambling at his own table in his own casino were deemed taxable as it was concluded that his gambling wins (in these circumstances) were derived from his regular business.

Though because of these precise circumstances, my first instinct would be to think that your friend's winnings would not be taxable.

Also, afaik, if a bank were to begin placing winning bets as part of their investments, then these winnings would be deemed taxable. As any winnings would be regarded as profits from the banks regular business.

Though if your friend is making more than the average tax consultant (and presumably he has no requirement for a "regular" job) I would have guessed there mustn't be much of a problem, as presumably if Revenue were in any way suspiscious they would want to know about the house, car & foreign holidays.

If anyone else has a perspective on this, please post it.