Tax on Bitcoin Gambling

lucas20042004

Hello,

I received an email from Coinbase stating that they were passing my details onto HMRC because I had withdrawn more than £5k to my bank account in the 2021 tax year. 

During the 2021 tax year I had placed quite a few bets on a bitcoin betting exchange. If I ever won a bet it would eventually come back to my Coinbase wallet in the form of Bitcoin and I'd then sell it for GBP and withdraw to my bank account.

I didn't ever report anything to HMRC as I understood that gambling is non taxable and I didn't make any significant appreciation on the Bitcoin whilst holding it for such a short time.

However if HMRC look at my Coinbase records they will simply see a load of bitcoin getting bought and being sent to another Bitcoin wallet (the betting exchange) and a load of bitcoin being received in my account from a different wallet, if I won any bets.

I am worried they will try and tax me on the winnings as I'm assuming they won't be offset against the original allowable cost, so loses won't be taken into account. Should I be okay if I have records from the betting exchange of all transactions?

Thanks

[Deleted User]

You misunderstand. HMRC don’t regard it as gambling. It really comes down to whether it is regarded as capital gains (profit on an investment) or, mainly due to frequency, trading. 

Definitely not tax free.

https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto20250

lucas20042004

[Deleted User] said:

You misunderstand. HMRC don’t regard it as gambling. It really comes down to whether it is regarded as capital gains (profit on an investment) or, mainly due to frequency, trading. 

Definitely not tax free.

https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto20250

I know that crypto trading isn't classed as gambling. I'm talking about using Bitcoin to gamble, so I don't see why winnings from gambling in Bitcoin would be any different from winnings from gambling in GBP?

When I take into account loses, I pretty much broke even. I just want to make sure that I can offset these Bitcoin gambling loses on the Bitcoin gambling winnings.

[Deleted User]

Hi,

gambling is normally done through a bookmakers/casino, which is tax free, you have been trading which may be due tax.

lucas20042004

frugalmacdugal said:

Hi,

gambling is normally done through a bookmakers/casino, which is tax free, you have been trading which may be due tax.

I used a bookmakers that accepted Bitcoin as currency. I think it’s possible that I didn’t explain this well enough. There’s no trading involved. I bought bitcoin with gbp and sent the Bitcoin to the bookmaker from Coinbase. If I win the bet, Bitcoin is sent back to my Coinbase account. The only trading that’s done is the initial buy and final sell, but the difference in price for example any appreciation that I would pay capital gains on would be negligible.

[Deleted User]

lucas20042004 said:

frugalmacdugal said:

Hi,

gambling is normally done through a bookmakers/casino, which is tax free, you have been trading which may be due tax.

I used a bookmakers that accepted Bitcoin as currency. I think it’s possible that I didn’t explain this well enough. There’s no trading involved. I bought bitcoin with gbp and sent the Bitcoin to the bookmaker from Coinbase. If I win the bet, Bitcoin is sent back to my Coinbase account. The only trading that’s done is the initial buy and final sell, but the difference in price for example any appreciation that I would pay capital gains on would be negligible.

In that case I would take a different view. If you are simply using bitcoin as a bank account with which to gamble, but not on bitcoin itself, it is pure gambling and should not be taxable. 

I would be ensuring that you can prove that this is the case.

Jeremy535897

In the olden days, personal bank accounts in foreign currencies used to be subject to capital gains tax. Say you had 1,000 euros in a bank account. You originally spent £800 to acquire those euros. Then you blew the whole 1,000 euros on a holiday when 1,000 euros was worth £900 in sterling because of exchange rate movements. You made a capital gain of £900 - £800 = £100 under the old rules. Now it is exempt.

Bitcoin is like the old foreign currency bank account rules. Say you have 1 bitcoin that cost £45,000. You buy a car with it that costs £24,000, but you have no bitcoin left because of the decline in bitcoin values. You have made a capital loss of £45,000 - £24,000 = £21,000.

I think that a bet is the same sort of thing. Let's say you bet the whole bitcoin costing £45,000 on an evens horse, nothing if you lose, 2 bitcoin if you win. The sterling equivalent when the bet is made is £24,000. You make an allowable loss of £21,000 on making the bet. If you lose, the loss of the bitcoin worth £24,000 is not allowable because gambling losses are not allowable. Your allowable capital loss is £21,000 not £45,000.

If you win, you now have 2 bitcoin. The first bitcoin was "sold" at £24,000, producing a loss of £21,000. But you now have 2 bitcoin, with a base cost of 2 x £24,000 = £48,000 (ignoring any movement in the bitcoin price over the period between making the bet and collecting the win). Or do you? No, because the fungible asset rules mean that the disposal of the first bitcoin is matched with the acquisition of (half of) the 2 new bitcoin (assuming the bet was paid within 30 days), and so you have 2 bitcoin with a pooled cost of £45,000 + £24,000 = £69,000, and a no gain no loss transaction of 1 bitcoin. So you have gained 1 bitcoin with a base cost of £24,000 from placing your bet, but there is no tax because it is a gambling win. (I am assuming we are not dealing with Bitcoin NFTs here, which are not pooled. See https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto22200 ). This gives the same result as you would have had if you had sold the original bitcoin for £24,000, placed the bet in sterling, won £48,000, and bought 2 new bitcoin with the winnings within 30 days of the placing of the bet (ignoring commissions and price movements).

I should add that the chances of an ordinary individual (as opposed to a recognised currency trader) being treated as a trader in cryptocurrency is remote. See https://www.gov.uk/hmrc-internal-manuals/cryptoassets-manual/crypto20250

lucas20042004

Thanks for the insight. I’ve plugged my Coinbase account into something called Koinly which calculates capital gains in a HMRC compliant way based on my transactions and it’s giving me a negative amount, which is reassuring although confusing as it wouldn’t know about the gambling part. It would just see me buying Bitcoin for cash, sending it somewhere and then receiving Bitcoin occasionally and subsequently selling for cash.

I guess I’ll wait to see it HMRC contact me. 

Jeremy535897

You will have to plug into it the following: bets made, sale of bitcoin at price on the day the bet is made, bet lost, no entry (just as if you'd spent it on a meal out), bet won, purchase of all the bitcoin won at the price on the day the bet is won.

lucas20042004

Jeremy535897 said:

You will have to plug into it the following: bets made, sale of bitcoin at price on the day the bet is made, bet lost, no entry (just as if you'd spent it on a meal out), bet won, purchase of all the bitcoin won at the price on the day the bet is won.

Can I not just leave out the bets from the report, seeing as it gives me a negative Capital Gains tax anyway without them?

Jeremy535897

If you paid a restaurant bill with bitcoin, that is a disposal of bitcoin for capital gains tax. In my opinion that is no different to paying for a betting slip with bitcoin. equally, if you sell someone something in exchange for bitcoin, that is a purchase of bitcoin for capital gains tax. So is cashing in your winnings for bitcoin. What you can't do is say that you had 1 bitcoin before the bet and 2 bitcoin after the bet, all you have done is buy 1 bitcoin for zero (because it is from gambling profits), or if you had 1 bitcoin before the bet, and no bitcoin after it, you haven't made a loss because gambling losses aren't allowable.