Do You Pay Tax On Lottery Winnings In UK?
Paying Tax on Lottery Winnings
Do I Have to Pay Tax on Lottery or Premium Bond Winnings in the UK?
If you've won the lottery, you might be wondering: "Do I have to pay tax on my winnings?" The good news is that lottery prizes in the UK are not taxable as income. However, there are still important financial considerations to be aware of—especially when it comes to how your winnings are used or gifted.
This guide provides a clear, trustworthy explanation of UK tax law surrounding lottery winnings, with insights from chartered accountants and HMRC guidelines. Whether you’ve won the National Lottery, a premium bond prize, or a TV game show jackpot, here's what you need to know.
Are Lottery Winnings Tax-Free in the UK?
Yes, lottery winnings are tax-free in the UK. This includes prizes from:
The National Lottery (including Lotto, EuroMillions, Thunderball)
Postcode Lottery
TV competitions
Scratchcards
Premium Bonds (operated by NS&I)
Online giveaways and contests, if deemed random and not earned through work or services
These types of winnings are not classed as “earned income” or “capital gains” under UK tax law. Therefore, they are not subject to Income Tax or Capital Gains Tax.
What About Tax on Interest or Income From Lottery Winnings?
While you don’t pay tax on the actual prize, you may pay tax on what you do with it. For example:
Interest or Investment Income
If you deposit your winnings into a savings account or invest it:
Interest earned is subject to Income Tax, depending on your personal savings allowance.
Investments that increase in value may trigger Capital Gains Tax (CGT) when sold.
💡 Tip: Seek advice from a qualified financial planner or accountant to structure your winnings tax-efficiently.
Could Inheritance Tax Apply?
Yes—Inheritance Tax (IHT) may become a factor if you gift large amounts of your lottery winnings or pass them on as part of your estate.
Key Points:
Gifts made during your lifetime may be subject to IHT if you die within 7 years.
Everyone has a £3,000 annual gift allowance and a £325,000 nil-rate band for their estate.
Consider using trusts or gifting strategies for estate planning.
✅ Example: If you gift £500,000 to a family member shortly after winning, this could be caught under IHT rules if you pass away within 7 years.
Do Syndicate Members Have to Pay Tax?
If you're part of a lottery syndicate, HMRC treats each member’s share as a tax-free gain, provided the syndicate agreement was in place before the win.
To protect yourself:
Use a written syndicate agreement
Clearly document each member’s contribution
Distribute winnings in line with the agreed terms
📌 Without proper documentation, HMRC may challenge the distribution and potentially tax it as a gift or transfer of value.
Are Foreign Lottery Wins Taxable in the UK?
If you're a UK resident and win a foreign lottery, the answer is more complex:
Some countries tax lottery prizes at source (e.g. USA, Spain).
The UK may not tax it again, but you must declare any foreign income or gains.
You could be eligible for foreign tax credit relief under double taxation treaties.
✈️ Example: You win €100,000 from a Spanish lottery. Spain deducts 20% tax. You must still declare the net amount in your UK Self Assessment return if interest or investment income arises.
Is It Better to Take a Lump Sum or Annuity?
While this is more common in US lotteries, some private UK competitions may offer a lump sum vs annuity option.
Lump sum gives you immediate control but could lead to higher taxable interest or investment income.
Annuity payments may spread income more evenly and keep you in a lower tax bracket.
Consult a regulated financial adviser to choose the most tax-efficient option.
Should I Report Lottery Winnings to HMRC?
No, you don’t need to report lottery winnings to HMRC—unless:
You later generate taxable income from those funds (e.g. interest, dividends, capital gains).
You’re claiming means-tested benefits that could be affected by increased capital.
📎 Always keep accurate records of how your winnings were used, especially for investments, gifts, or estate planning.
| Question | Answer |
|---|---|
| Do you pay tax on UK lottery winnings? | No – winnings are tax-free. |
| Is interest earned from winnings taxable? | Yes – Income Tax may apply. |
| Can Inheritance Tax apply to gifted winnings? | Yes – if you die within 7 years of gifting. |
| Are foreign lottery wins taxed? | Possibly – depending on the country and your UK tax status. |
| Should I report winnings to HMRC? | Not directly – but follow-up income must be declared. |
Frequently Asked Questions (FAQs)
✅ Do I need to tell HMRC if I win the lottery?
No. HMRC does not need to be informed about lottery winnings unless those funds later generate taxable income or gains.
✅ Can I give away lottery winnings to family without paying tax?
Yes, but Inheritance Tax rules may apply if you die within 7 years of gifting. Use allowances and consider professional estate planning.
✅ Will winning the lottery affect my benefits?
Yes. A large lottery win may impact eligibility for means-tested benefits such as Universal Credit or Housing Benefit.
✅ Can I put lottery winnings into a trust?
Yes, and doing so may help with estate planning and tax efficiency. A solicitor or accountant can help set this up properly.
Speak to a Tax Expert
While lottery winnings are exciting and tax-free at face value, managing them wisely is key. If you've won a prize or expect a windfall, it's wise to seek professional guidance.
At The Online Accountants, our qualified tax advisers and chartered accountants can help you:
Maximise your tax-free allowances
Plan tax-efficient gifts or trusts
Protect your wealth for future generations
📞 Book a confidential consultation today and make your winnings work smarter for you.