Tax implications of receiving large sums for gambling

[tomturro]

Hi all,

I'm not sure if this is the right category to post under, probably not, but my query is a little unusual so I'm not sure.

I live in the UK and an associate of mine is a professional sports bettor from overseas (non EU). I help him increase his betting volume by placing big bets for him in the UK bookies. To do this he sends me large sums of money by bank transfer or Western Union (eg £25,000). I understand that the winnings are tax free as they are gambling proceeds, but I am not 100% on the transfers. What would this kind of transfer be categorised as and would I be liable for any tax? I also transfer any winnings back to him (minus my share).

I understand this may sound dodgy, but I can assure you it is just betting. Any advice on these money movements is much appreciated.

Thank you.

[jpcentral]

Interesting question.

You are correct in saying that gambling winnings are exempt but a person/company providing a service connected to gambling is classed as trading and profits are therefore subject to tax. A bookmaker has to pay tax on his profits as does a tipster.

The question is therefore whether you are actually gambling. Possibly not. It doesn't sound as if you are risking your own money. You are taking a percentage of the gambling winnings of someone else. Presumably, you don't accept the same share of any losses? You are therefore providing a service of placing bets for a third party and this is a trade - not gambling.

My view is that the money you receive is not taxable, nor is the money which you send back but the percentage which you keep probably is.

I must admit that I don't know of any precedent for the above and I would be interested in the views of other accountants/tax advisers on the board.

[johnfkavanagh]

I'm afraid that I rather agree with the previous reply and I suspect that HMRC would too.

[tomturro]

Thank you both for your replies. I understand what you're saying.

However, what if i had said instead that I have a friend who is sending me money to invest in my gambling system? And if we win I send him a share of the profits. So I am gambling, just with money that he has given me.

[jpcentral]

You could say that. Whether or not HMRC believe you is the debatable point.

[JRG]

Gifts of money from one person to another are not taxable. Therefore, if your friend gifts you 'his' money, and then you bet with 'your' money, and then you gift 'your' money to your friend, I can't see how HMRC can argue that you are providing a service, even if you appear to be. However, HMRC will obviously try to close this loophole asap.

[jpcentral]

Gifts are not taxable under Income Tax. They do, however, become PETs (Potentially Exempt Transfers) under Inheritance Tax rules. So, if you gift substantial sums of money to your friend, they may have an implication on your estate if you happen to die within seven years. That possibility may seem remote so you may decide it is not worth bothering about. Presumably the amounts you are sending out are substantially greater than the amounts you are receiving so there could be a pretty substantial Inheritance Tax liability building up. An Inheritance Tax rate of 40% could apply to the whole of the money you send, not just the profit.

HMRC act internationally now so are likely to communicate your version to the tax authorities in your friends country of residence and a tax enquiry launched there too. Whether or not tax would be payable there depends on their laws. If it is the USA, for example, their laws on gambling in most states are pretty strict. Both of your stories would need to agree. There is no point in you putting forward something in the UK which drops your friend in a mess wherever he lives.

If the amounts involved are as large as you say, HMRC will probably be made aware by your bank and are unlikely just to accept an off the cuff answer without verification so an enquiry could be very deep and prolonged.

[jpcentral]

I would take the last comment with a pinch of salt. There have been cases where someone's only (substantial) income was from gambling and these have not been treated as a trade, so not taxable. In a recent case in 2014 the Court of Appeal held that Mr Hakki, whose sole income was from poker winnings, was not trading and was not self employed.

Whilst the courts and HMRC say that, in some circumstances, gambling can be a trade it has been impossible (so far as I am aware) for them to actually bring a successful case.

[tomturro]

Apologies for my late reply; I have just returned form holiday. Thanks for all the replies, especially John for the thorough explanations. I have taken it all on board but it seems there is some ambiguity here. At what point do I need to worry about this? Do I need to be actively seeking a solution and finding a lawyer to fight my case? Or can I just ignore it and wait till HMRC come knocking? And in what form will they knock? Will I have the opportunity to lawyer up before giving them any answers?

Thanks a million everyone for the generous advice.

[bd6759]

If gambling were a trade, all the punters who lost money on failed bets would be able to claim tax relief on those losses.

In your scenario you are not gambling. You are providing a service by placing bets on behalf on behalf of another, and you are receiving payment for doing that. That payment is taxable income.

You cannot redefine this by saying that your overseas friend is gifting you the money in the hope that you will gift him back some of the winnings. It is clearly not a gift, and any attempt to define it as such will not wash. If it were correct, all of us will have been going about our business the wrong way. We could simply gift our goods and services in the expectation that we will receive a gift of cash in return, and thus avoid taxable profits. What a great wheeze. I wonder why no-one has thought of it before?