What to Do About Tax Issues
When you win a large lottery prize in the UK, you will have the chance to speak to experienced advisors who have guided other lucky players through what to do with their newfound wealth. They will be able to point you in the direction of financial experts and will recommend the most appropriate banks for you to open an account with based on your own circumstances.
With regards to the issue of IHT, it is a good idea to think carefully about the timing of any gifts you plan to make, and then keep a record of any payments. Your financial advisor will also speak to you about the tax on your interest and discuss possible investments to give you the maximum benefit. It may be a complicated topic, but any advice you receive will be tailored to your own personal situation and one very positive aspect is that your prize will not be subject to the same sort of tax laws as it would be in other countries.
UK Tax Implications
While there is no tax on lottery winnings in the UK, there are a number of important considerations to keep in mind if you are lucky enough to bank a substantial amount such as a EuroMillions jackpot.
Inheritance tax (IHT) is paid when a UK resident dies and their estate is worth more than £325,000. Everything above that threshold will be taxed at 40 percent. If you win a large EuroMillions prize and your estate exceeds the £325,000 valuation, you should be aware of the rules regarding IHT and how it will affect your heirs.
It is very common for big winners to want to share their jackpot in some way, but if you want to make a gift without paying tax you must meet one of the following criteria:
- Give the gift more than seven years before you die.
- Give the gift to your husband, wife, or civil partner.
- Give less than your annual allowance of £3,000.
The seven-year rule is in place to stop people from giving money away just before they die so that they can avoid IHT. As long as you live for at least seven years after making your gift, you can give as much as you want to whoever you want without it being liable for IHT.
If you were to die within seven years, the recipient would have to pay IHT based on a sliding scale. The rate of tax is the full 40% if there are less than three years between you giving your gift and dying, and then it goes down to 32% in years three to four, 24% in years four to five, 16% in years five to six and 8% if there are between six and seven years between your gift and your death.
Any gifts made to your spouse or civil partner are exempt from IHT, so it would not matter if you died within seven years. You can also give gifts to any registered charity without being liable for tax, along with some national organisations, such as the National Trust, universities or museums.
You can also take advantage of the £3,000 ‘gift allowance’ each year without incurring IHT. If you give away more than this amount and pass away within seven years, the recipient would have to pay tax. It is possible to carry over your leftover allowance from one tax year to the next, but only up to a maximum of £6,000.
Other Tax-free Gifts
You can also give smaller gifts of up to £250 to as many people as you want without them being subject to IHT, although this would not include anyone who has already received gifts totalling the whole £3,000 annual exemption.
Wedding gifts can also be exempt from IHT, but only if they are made before the wedding and there has to be proof that the marriage does go ahead. You can make wedding gifts of up to £5,000 to a child, £2,500 to a grandchild or great-grandchild or £1,000 to anyone else. You can also make gifts to help pay the living costs of an ex-spouse, an elderly dependent or a child.
Lottery rules in the UK stipulate that only one person can be paid a prize, so when playing in a syndicate it is essential to have a formal agreement in place to show to tax authorities. This will prove the money was not just a gift and that everyone is entitled to their share. Anyone playing in an informal syndicate should be aware that they may have to pay inheritance tax on the full amount if the syndicate leader dies within seven years of the prize money being shared.
Tax on Interest
Most people can earn some interest from their savings without paying tax, but this might not be the case if you win a large enough EuroMillions prize. While there is no tax on the initial sum paid into your account, it may be that the win starts to produce an income through interest. This will then be taxed as part of your normal income tax.
Good Causes by Country
View information about Good Causes for the following EuroMillions countries:
In the UK, 28p from every £1 spent on National Lottery games, including EuroMillions, is set aside for good causes. More than £40 billion has been raised since the National Lottery began, with over £30 million per week being added to the Good Causes Fund.
More than half a million awards have been granted to projects across the UK, and the figure keeps rising sharply each year. The funds collected are distributed by a number of bodies, covering four main categories – Sports, Arts, Heritage, and Health Education, Environment and Charitable Causes.
The money is split proportionally as set out by the Department for Culture, Media and Sport:
Österreichische Lotterien, which runs EuroMillions in Austria, has been sponsoring good causes under the motto of ‘good for Austria’ since 1986. Austria’s Olympic and Paralympic Committees have been backed by funds raised through lottery games in Austria. A range of other humanitarian and research projects have also benefited, while money has been raised to help the protection of pandas, lynx and bearded vultures.
The Belgian National Lottery is committed to helping various good causes and offers grants and sponsorships to a host of projects. A total of €185.3 million was made available for public service grants in 2016, split between 61.95% for humanitarian and social work, 27.44% for donations to the community, 6.5% for culture, 2.92% for sport and 1.19% for science.
Française des Jeux, the French National Lottery, is committed to developing athletes with sponsorship programmes, providing social support through sport and helping disabled people access sports. It achieves these aims through funds from games like EuroMillions, which are distributed by the lottery’s foundation. The company also sponsors the Française des Jeux professional cycling team, which was founded in 1997.
More than €5 billion has been raised for good causes since the Irish National Lottery began in 1987, and approximately 30% of the funds generated from games such as EuroMillions are donated to worthy projects. The money is distributed across the country, supporting local initiatives and larger organisations such as the CROCUS Centre for people with cancer, the Dyslexia Association and the Asthma Society.
The net profit on all Luxembourg lottery games, including EuroMillions, is donated to good causes in the fields of health, sport, culture, social issues and the environment. The Nationale Grande-Duchesse Charlotte is responsible for distributing the grants on behalf of the lottery and has awarded almost €220 million to date, with beneficiaries including the Luxembourg Red Cross, the National Cultural Fund.
The Portuguese Department of Games runs lotteries such as EuroMillions and donates the majority of net income to government departments who distribute the funds in the areas of health, sport, culture and social issues. Of the money provided for beneficiaries across Portugal and its islands, 28% is pledged to Santa Casa Misericordia de Lisboa, a charity dating from the 15th century which runs hospitals and other health centres, as well as supporting a wide range of other projects.
Loterias y Apuestas del Estado allocates its profits to an array of good causes devoted to social issues, sport, culture, education and the environment. Some of the charitable organisations to benefit from funds from EuroMillions and other lottery games are the Spanish Association Against Cancer, the Olympic Sports Association and San Ildefonso Primary School.
There are two official lottery operators in Switzerland – Swisslos and Loterie Romande. Swisslos supports national sports programmes such as the Olympic team and youth development in football, whilst also focusing on the German-speaking cantons of Switzerland and Ticino across sectors such as culture, sport, social issues and the environment. Loterie Romande provides support for good causes in the French-speaking cantons, benefiting the areas of sport, social action, education, health, culture, research, heritage, the environment and tourism.