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Author Topic: UK - Capital Gains, Tax and Gambling  (Read 3743 times)
fluidjax
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November 21, 2013, 03:09:40 PM
 #1

I've been thinking out how to reduce any Capital Gains Tax that someone is liable to pay.

Lets say I bought 100 bitcoins for £1 they would now be worth £40K.
Assuming I'm already in a high income tax bracket, so the first £10K is part of my CGT allowance and the £30K is liable to tax at 28%.
But these taxes are only due when I realise my gains, ie. sell the coins.
So when I sell I would end up with £31.6K

So....
If I make a sequence of many bets with this capital, betting the whole amount through Satoshi dice or Just-dice.
(on just-dice this would probably be 1000 bets of 0.1 Bitcoins at 98% chance of winning)
I should end up with around 99 Bitcoins having lost around 1% due to the 'house edge' this would amount to £39.6K.

But winnings are not subject to Capital Gains Tax, and as all my Bitcoins are now the proceeds of gambling I don't need to pay?
   http://www.hmrc.gov.uk/cgt/intro/when-to-pay.htm#1

I guess this situation hasn't occurred before because any gains in other instruments (stocks etc) need converting into fiat before they can be gambled, and of course that triggers a taxable event, in this case it never becomes taxable.

Thoughts?


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SuperHakka
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November 21, 2013, 03:14:49 PM
 #2

No, when you come to convert your bitcoins to GBP, they will be treated as vouchers so you pay VAT on them regardless of how they were earned.

http://www.coindesk.com/bitcoin-uk-hmrc-suggests-bitcoins-taxable-vouchers/

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fluidjax
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November 21, 2013, 03:25:23 PM
 #3

No, when you come to convert your bitcoins to GBP, they will be treated as vouchers so you pay VAT on them regardless of how they were earned.

http://www.coindesk.com/bitcoin-uk-hmrc-suggests-bitcoins-taxable-vouchers/

I am not liable to pay VAT unless I am a VAT registered business or I exceed the £79K threshold and am forced to register, isn't that true?

oblongmeteor
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November 21, 2013, 03:55:44 PM
 #4

VAT is due on sales of Bitcoins within the United Kingdom. If the Bitcoins were purchased outside the United Kingdom (E.g. through a European exchange), then any sales taxes such as VAT are the responsibility of the seller *if* any such taxes were applicable in the jurisdiction in which they were sold. So, if you were buying Bitcoins from Bitstamp in Slovenia, VAT would not be due since Slovenia don't (I believe) class Bitcoin as a VATable commodity and if they did, it would be up to Bitstamp and/or the seller to ensure this was paid.

If you were selling your Bitcoins in the UK, you would be liable to charge VAT if the turnover from that transaction exceeded the VAT threshold (79,000 for the 2013-2014 financial period). So, in your case selling 40K of Bitcoins would not cause you to register for and charge VAT on the sale.

With regards to your proposal to launder the money, this won't work. To my fairly certain knowledge in order for the proceeds of gambling to tax exempt, the counter party (in this case Just-Dice) would need to have a gambling license (or equivilent for the jurisdiction in which they are registered). In effect, if you laundered your Bitcoins and received 39,500 GBP back, it would still be liable for tax and you'd just have given Just-Dice 500 GBP.

The whole tax applicability is a murky area, but as Germany are the only country to apply any semi-official recognition to Bitcoin, you can be pretty sure that as a UK owner:

-> VAT is due if you sell your Bitcoins and the turnover exceeds 79,000 for 2013-2014 financial year
-> Capital gains tax will be due after the realised gains from the sale exceed the personal allowance for the 2013-2014 financial year

Basically, they've got their hand in your pocket either way. On a separate note; Talk to an accountant if you are in *any* doubt - do not take my ramblings as gospel.
AlexM
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November 21, 2013, 04:01:15 PM
 #5

Saying Bitcoins is vouchers is wrong in my eyes. Only discount vouchers that are sold are Vat-able, all other vouchers are VAT free according to HMRC. So if Bitcoins are vouchers they are not Vat-able. I do believe that they are not vouchers and HMRC regardless of what they have said in the past will not treat them as vouchers.

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oblongmeteor
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November 21, 2013, 04:05:29 PM
 #6

Saying Bitcoins is vouchers is wrong in my eyes. Only discount vouchers that are sold are Vat-able, all other vouchers are VAT free according to HMRC. So if Bitcoins are vouchers they are not Vat-able. I do believe that they are not vouchers and HMRC regardless of what they have said in the past will not treat them as vouchers.

This is simply wrong. Bitcoins *are* a VATable commodity and HMRC *will* expect you to pay VAT if you meet the threshold. Wishing on rainbows and unicorns that you'll be a 'special case' is willful ignorance.

See: https://localbitcoins.com/forums/#!/regional/uk#uk-sellersbuyers-beware

Remember; Ignorance is no excuse in the eyes of the law.
fluidjax
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November 21, 2013, 04:27:36 PM
 #7

With regards to your proposal to launder the money, this won't work. To my fairly certain knowledge in order for the proceeds of gambling to tax exempt, the counter party (in this case Just-Dice) would need to have a gambling license (or equivilent for the jurisdiction in which they are registered). In effect, if you laundered your Bitcoins and received 39,500 GBP back, it would still be liable for tax and you'd just have given Just-Dice 500 GBP.

Thank you for your information:
So its only treated as gambling if the counter party has a recognised licence.
So if I can find a Bitcoin Gambling Site that has a license in some obscure jurisdiction like Belize or Costa Rica etc.  or perhaps an existing gambling site may start accepting Bitcoin over the next year or two, I may be able to avoid the CGT then I can sell my coins at Bitstamp/Gox(not) to hopefully avoid the VAT.



AlexM
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November 21, 2013, 04:30:06 PM
 #8

Saying Bitcoins is vouchers is wrong in my eyes. Only discount vouchers that are sold are Vat-able, all other vouchers are VAT free according to HMRC. So if Bitcoins are vouchers they are not Vat-able. I do believe that they are not vouchers and HMRC regardless of what they have said in the past will not treat them as vouchers.

This is simply wrong. Bitcoins *are* a VATable commodity and HMRC *will* expect you to pay VAT if you meet the threshold. Wishing on rainbows and unicorns that you'll be a 'special case' is willful ignorance.

See: https://localbitcoins.com/forums/#!/regional/uk#uk-sellersbuyers-beware

Remember; Ignorance is no excuse in the eyes of the law.


Whilst that might be so written, reading on this and other forums there have been instances in the last week or 2 where HMRC have said treat Bitcoins as currency, and the guy who went to court argued that vouchers are not taxable, he won and did not have to pay any Vat. So I would suggest VAT is not applicable.

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oblongmeteor
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November 21, 2013, 04:36:01 PM
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Whilst that might be so written, reading on this and other forums there have been instances in the last week or 2 where HMRC have said treat Bitcoins as currency, and the guy who went to court argued that vouchers are not taxable, he won and did not have to pay any Vat. So I would suggest VAT is not applicable.

Could you provide the links? It would be quite an important milestone in Bitcoin's recognition if this were the case.
oblongmeteor
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November 21, 2013, 04:50:16 PM
 #10

With regards to your proposal to launder the money, this won't work. To my fairly certain knowledge in order for the proceeds of gambling to tax exempt, the counter party (in this case Just-Dice) would need to have a gambling license (or equivilent for the jurisdiction in which they are registered). In effect, if you laundered your Bitcoins and received 39,500 GBP back, it would still be liable for tax and you'd just have given Just-Dice 500 GBP.

Thank you for your information:
So its only treated as gambling if the counter party has a recognised licence.
So if I can find a Bitcoin Gambling Site that has a license in some obscure jurisdiction like Belize or Costa Rica etc.  or perhaps an existing gambling site may start accepting Bitcoin over the next year or two, I may be able to avoid the CGT then I can sell my coins at Bitstamp/Gox(not) to hopefully avoid the VAT.

Maybe. Provided the gains are accepted as gambling wins and you have the necessary paperwork to back it up should the source of wealth be queried. Again, I would strongly advise you speak to an accountant - especially if you are looking to convert a sum of Bitcoins that will yield substantial GBP. You really don't want HMRC sniffing around - otherwise it could all get very expensive. 
fluidjax
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November 21, 2013, 04:55:38 PM
 #11

With regards to your proposal to launder the money, this won't work. To my fairly certain knowledge in order for the proceeds of gambling to tax exempt, the counter party (in this case Just-Dice) would need to have a gambling license (or equivilent for the jurisdiction in which they are registered). In effect, if you laundered your Bitcoins and received 39,500 GBP back, it would still be liable for tax and you'd just have given Just-Dice 500 GBP.

Thank you for your information:
So its only treated as gambling if the counter party has a recognised licence.
So if I can find a Bitcoin Gambling Site that has a license in some obscure jurisdiction like Belize or Costa Rica etc.  or perhaps an existing gambling site may start accepting Bitcoin over the next year or two, I may be able to avoid the CGT then I can sell my coins at Bitstamp/Gox(not) to hopefully avoid the VAT.

Maybe. Provided the gains are accepted as gambling wins and you have the necessary paperwork to back it up should the source of wealth be queried. Again, I would strongly advise you speak to an accountant - especially if you are looking to convert a sum of Bitcoins that will yield substantial GBP. You really don't want HMRC sniffing around - otherwise it could all get very expensive. 


Thanks... at least there is some hope. I will speak to my accountant before attempting anything
AlexM
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November 21, 2013, 05:25:40 PM
 #12

Whilst that might be so written, reading on this and other forums there have been instances in the last week or 2 where HMRC have said treat Bitcoins as currency, and the guy who went to court argued that vouchers are not taxable, he won and did not have to pay any Vat. So I would suggest VAT is not applicable.

Could you provide the links? It would be quite an important milestone in Bitcoin's recognition if this were the case.

I have no knowledge of the actually instances but it is reported to be happening online by quite a few people so I presume there will be caselaw and presidents set. Here are the 2 I picked up within 2 minutes of typing Bitcoin and Vat into Google.

ciaranmurray • 6 days ago −
I personally know a bitcoin trader who was asked to pay VAT. He took HRMC to court over their clasification of bitcoin as vouchers and therefore liable to VAT and won. He won because vouchers aren't liable to VAT either Smiley

Mark Cross • 6 days ago −
Well I had a telephone call back from HMRC this week regarding captial gains tax and dividends as income on mining. The advice given TO ME, was treat it like money. If HMRC continues to give conflicting information, then trading will just move overseas.

Both of these were from comments on http://www.coindesk.com/bitcoin-uk-hmrc-suggests-bitcoins-taxable-vouchers/  but I imagine if you pm'd them or researched some more you could find more instances of this, as I have seen quite a few comments on this topic over the last 2 or 3 weeks with lots of people claiming the HMRC is saying quite a few different things.

I like the idea of the gambling winnings being tax exempt, its a shame none of the gambling sites are registered with gambling authorities or else this may be a good idea.  Although it does sound a tad dodgy I would definitely take pro advice before trying this.

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oblongmeteor
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November 21, 2013, 05:42:56 PM
 #13

Whilst that might be so written, reading on this and other forums there have been instances in the last week or 2 where HMRC have said treat Bitcoins as currency, and the guy who went to court argued that vouchers are not taxable, he won and did not have to pay any Vat. So I would suggest VAT is not applicable.

Could you provide the links? It would be quite an important milestone in Bitcoin's recognition if this were the case.

I have no knowledge of the actually instances but it is reported to be happening online by quite a few people so I presume there will be caselaw and presidents set. Here are the 2 I picked up within 2 minutes of typing Bitcoin and Vat into Google.

ciaranmurray • 6 days ago −
I personally know a bitcoin trader who was asked to pay VAT. He took HRMC to court over their clasification of bitcoin as vouchers and therefore liable to VAT and won. He won because vouchers aren't liable to VAT either Smiley

Mark Cross • 6 days ago −
Well I had a telephone call back from HMRC this week regarding captial gains tax and dividends as income on mining. The advice given TO ME, was treat it like money. If HMRC continues to give conflicting information, then trading will just move overseas.

Both of these were from comments on http://www.coindesk.com/bitcoin-uk-hmrc-suggests-bitcoins-taxable-vouchers/  but I imagine if you pm'd them or researched some more you could find more instances of this, as I have seen quite a few comments on this topic over the last 2 or 3 weeks with lots of people claiming the HMRC is saying quite a few different things.

I like the idea of the gambling winnings being tax exempt, its a shame none of the gambling sites are registered with gambling authorities or else this may be a good idea.  Although it does sound a tad dodgy I would definitely take pro advice before trying this.

Unfortunately, this isn't evidence. Unless there is a scan of written correspondence with HMRC where they have explicitly retracted their current VATable position, everything else is just hearsay and you would be wise not to base your financial assumptions around it.
fluidjax
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November 21, 2013, 06:32:21 PM
 #14

Desicions by lower courts also have little or no precedent , because there is so much money involved there are bound to be a number of cases that go up the appeals system, we are just going to have to wait and see.. Or be the ones to appeal
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January 02, 2014, 03:20:25 AM
 #15

http://www.coindesk.com/hrmc-decides-rethink-tax-stance-bitcoin/

I would suggest that this story proves that VAT is not payable on Bitcoins but please ask HMRC for your own guidance.

Does anyone else know a way to sell Bitcoins over £10,900 profit in a year whilst minimising UK tax?  [I am presuming gambling on Just-dice would not work as capital gains is due on Bitcoins when they are converted to £GBP which would be after the gambling. It is also not a registered gambling site which would cause further problems.]

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January 14, 2014, 01:12:32 PM
 #16

http://www.coindesk.com/hrmc-decides-rethink-tax-stance-bitcoin/

I would suggest that this story proves that VAT is not payable on Bitcoins but please ask HMRC for your own guidance.

Does anyone else know a way to sell Bitcoins over £10,900 profit in a year whilst minimising UK tax?  [I am presuming gambling on Just-dice would not work as capital gains is due on Bitcoins when they are converted to £GBP which would be after the gambling. It is also not a registered gambling site which would cause further problems.]

Thanks for the link AlexM, very helpful, don't know how I'd missed it.

Re capital gains tax, talk to an accountant, opinions and hearsay here as others have said, are just that, opinions and hearsay. Remember there is a very serious difference between tax avoidance (legal) and tax evasion (not legal).

Re money laundering, be aware that just the process of layering money to conceal the source is in itself a crime. At best you'll get a hefty fine. At worst you might find yourself accused as attempting to obscure the proceeds of far more serious crimes than simple tax evasion.

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January 14, 2014, 09:56:47 PM
 #17

No, you have to pay taxes on the 100 btc you made.  The fact that you then gamble the money has no bearing on the fact you have to pay tax on the 100 btc.  If your line of thinking was true, then I could gamble all my income every year in a 99.99% winning game and not have to pay any taxes.
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January 15, 2014, 11:10:05 AM
 #18

No, you have to pay taxes on the 100 btc you made.  The fact that you then gamble the money has no bearing on the fact you have to pay tax on the 100 btc.  If your line of thinking was true, then I could gamble all my income every year in a 99.99% winning game and not have to pay any taxes.

You can't pay tax on 100 Bitcoins until it becomes a taxable event, which  would be the gain you make when you change them into GBP.
If you take your income (income tax already paid) and then gamble it, there is no further tax to pay whether you win or lose.


See CGT at http://www.legislation.gov.uk/ukpga/1992/12/section/51/enacted

"It is hereby declared that winnings from betting, including pool betting, or lotteries or games with prizes are not chargeable gains, and no chargeable gain or allowable loss shall accrue on the disposal of rights to winnings obtained by participating in any pool betting or lottery or game with prizes."

The Bitcoins are clearly winnings from betting, and so are expressly exempted.
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January 15, 2014, 12:40:10 PM
 #19

You can't pay tax on 100 Bitcoins until it becomes a taxable event, which  would be the gain you make when you change them into GBP.
If you take your income (income tax already paid) and then gamble it, there is no further tax to pay whether you win or lose.

I think the problem is how you class the initial acquisition of the bitcoins.

I think that's likely to be the taxable event, probably as Income Tax (although this would depend if you mined on a Pool, individually etc). When you sell them / give them to someone else, that's probably a second taxable event, this time as Capital Gains (increase in value between the first and the second event).

There after, yes, if you gamble them with someone who is licensed then any gain or loss is probably exempt of tax.

This really needs an accountants opinion. Preferably one who is also prepared to sign off your tax return. Smiley


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fluidjax
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January 15, 2014, 01:57:55 PM
 #20

You can't pay tax on 100 Bitcoins until it becomes a taxable event, which  would be the gain you make when you change them into GBP.
If you take your income (income tax already paid) and then gamble it, there is no further tax to pay whether you win or lose.

I think the problem is how you class the initial acquisition of the bitcoins.

I think that's likely to be the taxable event, probably as Income Tax (although this would depend if you mined on a Pool, individually etc). When you sell them / give them to someone else, that's probably a second taxable event, this time as Capital Gains (increase in value between the first and the second event).

There after, yes, if you gamble them with someone who is licensed then any gain or loss is probably exempt of tax.

This really needs an accountants opinion. Preferably one who is also prepared to sign off your tax return. Smiley


Costa Rica, where a number of online gambling companies are based, doesn't require a gambling licence. Satoshi Dice is based in Costa Rica.






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