One of the most often recurring questions that comes up when discussing sports arbitrage is about the tax status of the profits made by sports arbitrage traders.
There is no doubt that profits from betting & gaming are fully tax exempt in the UK. The reason for this is that a long established principle of UK tax law is that where a source of income is taxable, then relief is given for losses if you make them. As 95% of punters are losers the Treasury is naturally not keen on this idea.
In the 2001 Budget, the Chancellor went one step further and abolished all general betting duty for punters and replaced it with a 15% tax on bookmakers’ gross profits.
The situation for sports arbitrage traders may be different, however, where the Inland Revenue can establish that the trader’s “sole or main income” is derived from betting. In this special case, under the Income & Corporation Taxes Act, speculative profits are taxable under D Case I as trading income.
In order to protect yourself from any tax liability on your trading profits, no matter how large they become, all you need is to be able to demonstrate that betting is a hobby and not your sole or main source of income. If sports arbitrage was to become your main source of income (as it is for many professionals) then a simple, perfectly legal way to avoid paying taxes on the income would be to set up a tax “front” which enables you to say that your betting is a hobby.
Examples of such a front would be:
- a buy-to-let property which generates rental income
- part-time consulting work or a part-time job whose income you declare to the Inland Revenue
- details of any other activity from which you draw an income that you can declare on your tax-return
In any case, this type of issue is only likely to affect you if you are trading extensively and making sports arbitrage profits at the top-end of the scale (£80,000-£150,000 per annum). If your activity attracts the attention of the Inland Revenue, you should seek specialist personal tax advice from a qualified FCA who will be able to answer their questions effectively.
Tags: Sports Arbitrage, Tax