The UK’s offshore online gambling market is expected to expand significantly over the coming years as higher gambling taxes make it more challenging for licensed operators to compete, according to new analysis from H2 Gambling Capital.
The research suggests that rising tax costs, combined with tighter regulation, could encourage more players to use unlicensed offshore gambling sites, reducing the share of gambling activity taking place within the UK’s regulated market.
H2 estimates offshore gross gaming yield (GGY) increased from around £200 million in 2019 to approximately £685 million in 2025, while offshore turnover climbed from £5 billion to £16.6 billion during the same period. The consultancy expects offshore GGY to reach roughly £1.4 billion by 2031, representing a compound annual growth rate (CAGR) of 12.7% from 2025.
The analysis is based on H2’s proprietary modelling, which combines web traffic data, visitor engagement metrics and spending estimates. According to the company, offshore customers typically spend around twice as much as users of licensed UK operators, meaning offshore gambling accounts for a larger share of spending than website traffic alone would suggest.
As a result, the proportion of online gambling taking place with UK-licensed operators has already declined. Channelisation is estimated to have fallen from 97% in 2019 to 92% in 2025, with H2 forecasting a further drop to 85% by 2031. On a turnover basis, the licensed sector’s share is expected to fall from 90% to 78% over the same period.
While the overall UK online gambling market is projected to grow modestly from £8.8 billion in GGY in 2025 to £9.6 billion by 2031, H2 notes that this equates to a real-term decline once inflation is taken into account.
A key driver behind the projected shift is the government’s overhaul of remote gambling taxation. From April 2026, Remote Gaming Duty increased from 21% to 40%, while remote betting duty is scheduled to rise to 25% from April 2027, excluding UK horseracing bets, which retain a lower tax rate due to the existing racing levy. The reforms were introduced following a Treasury consultation aimed at simplifying gambling taxes while raising additional public revenue.
The report says these higher tax rates represent a major challenge for licensed operators, increasing the likelihood that some customers migrate to offshore platforms offering higher returns, larger bonuses or fewer restrictions.
Within the regulated market, online casino gaming remained relatively strong in 2025, with GGY rising 14% to £5.7 billion. However, online betting revenue fell 6% to £2.45 billion, despite betting turnover increasing by 5%, reflecting weaker operator margins. Gambling Commission data also pointed to softer market activity, with active accounts down 7% and total bets falling 6%.
H2 expects online casino revenue to decline slightly in 2026 before falling more sharply in 2027 as the full impact of the tax changes takes effect. The consultancy estimates the combined effect of higher duties, reduced promotional spending and lower slot return-to-player rates could create a real-term revenue headwind of between 20% and 25% across 2026 and 2027.
Sports betting is expected to perform better in 2026 thanks to the FIFA World Cup, with online betting GGY forecast to rise 3% to £2.52 billion before easing in 2027 after the tournament and the introduction of the higher betting tax.
The findings also coincide with wider concerns about consumer safety in the unlicensed market. Separate research by TransUnion found that 12% of young adults have knowingly fallen victim to fraud involving unlicensed betting websites, highlighting risks associated with players moving away from regulated operators.
Responding to H2’s report, Betting and Gaming Council CEO Grainne Hurst warned that further tax increases could strengthen illegal operators rather than protect consumers.
She argued that higher taxes risk reducing jobs, investment and tax receipts while driving more players toward offshore sites that do not provide the same consumer safeguards required of licensed UK businesses.