Do I have to pay tax on lottery or gambling winnings?
You don't have to pay tax on gambling or lottery winnings in the UK. So, if you're lucky enough to pick the right numbers or choose the right horse, your winnings are not subject to income tax or any other deductions from Her Majesty's Revenue and Customs.
However, it's worth knowing where you stand if you consider yourself a "professional" gambler earning money from betting alone. This can help ensure you stay the right side of tax law in future.
Any winnings from the National Lottery or from other forms of gambling, such as sports betting, do not count as taxable income, according to the HMRC. Gambling profit and loss doesn't apply in the same way as it does in a standard business or self-employed scenario. For example, if you were obliged to report gambling winnings to HMRC, then you would also need to list losses. In most cases, gambling losses outstrip profit, so the consequences of reporting gambling income get too complicated for tax officers to handle.
The idea of a "professional gambler" is a little misleading. While some people do indeed draw their main income from gambling, HMRC doesn't recognise gambling as a taxable profession. In fact, the HMRC refers to a case from way back in 1925 -- the case of Graham v Green. The case led to the legal conclusion that even having a so-called "system" doesn't mean you're a professional in the legal sense.
If a professional gambler earns money solely from gambling, then they pay no tax. However, other related income can trigger income tax.
For example, if you earn money as a professional poker player and receive a fee to speak on TV, that money could be seen as taxable income. From HMRC's perspective, you have provided a service to the television company, making it a form of taxable income.
Premium bonds offer another non-taxable form of gambling income. The bonds are managed by National Savings and Investments -- officially part of the Chancellor of the Exchequer. Backed by the treasury, premium bonds offer a secure way to save money.
However, instead of earning interest, your money buys a chance of winning a randomly selected monthly prize. You get one prize entry for every pound saved. HMRC does not require you declare any of these winnings.