Do You Pay Taxes on Lottery Winnings in the UK?

Lottery winnings in the UK are exempted from tax. His Majesty’s Revenue and Customs (HMRC) does not treat lottery winnings as a source of income. So, if you win the lottery, rest assured that your prize will be paid out to your account, in full.

However, there are certain situations where you need to pay tax on your lottery winnings. Keep reading to learn more about when you’ll be taxed on your lottery winnings in the UK.

Tax on Interest on Lottery Winnings in the UK

When you win the lottery, your full winnings will be deposited into your bank account.

But, if that money is earning interest and dividends, you’ll be subject to Income Tax.

If you choose to invest your lottery winnings in stock markets, you’ll have to pay Income Tax as well. Simply put that any interest generated from your lottery winnings is subject to tax.

Inheritance Tax on Lottery Winnings in the UK

Another type of tax in the UK is the Inheritance Tax which is a tax on the estate of a deceased. Your lottery winnings become part of your estate. When you pass away, your heir has to pay Inheritance Tax (IHT).

The Inheritance Tax rate is 40%. If your estate is lower than the threshold (below £325,000), your heir is free from the Inheritance Tax. Regardless, they must declare the estate value to HMRC.

Any estate value higher than the £325,000 threshold will have to pay Inheritance Tax on the part of the estate that’s higher than the threshold. For example, if your estate is worth £600,000, you’ll be charged 40% on the difference between your estate value and the threshold, which is £275,000 (£600,000 – £325,000 = £275,000). Therefore, your Inheritance Tax is 40% of £275,000.

Tax on Gifting Your Lottery Winnings in the UK

Gifting your lottery winnings is also subject to Inheritance Tax. UK citizens can give £3,000 every tax year (6th April – 5th April) without paying the IHT.

Also, if you gift your lottery winnings to your spouse or within your annual allowance of £3,000, you won’t have to pay the IHT. You’re allowed to carry your unused allowance to the next tax year. You can also give up to £250 to whomever you like as long as you didn’t use your £3,000 on that particular person in the same tax year.

If you give any part of your estate to someone, it is still classified under your estate for the next 7 years from the day of the donation. Therefore, the person who received the gift would have to pay the Inheritance Tax. The gift can be exempted from Inheritance Tax if you gave them more than 7 years before you die.

As for wedding gifts, they’re free from the Inheritance Tax if:

• You give them before the wedding
• You give up to £1,000 to anyone, maybe a cousin or an uncle
• You give up to £2,500 to a grandchild or great-grandchild
• You give up to £5,000 to a child

Conclusion

There are no direct taxes on the lottery winnings in the UK. However, if you invest your lottery winnings in stock markets and business, gain interest from the bank or dividends from shares, or give gifts to friends and family, you’ll have to pay the respective taxes.

We advise you to seek professional advice on what to do with your prizes and how to legally avoid or reduce taxes on lottery winnings. Get your lottery tickets from any of the best online lottery sites and try your luck!

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