Do You Pay Tax On Lottery Winnings In UK?
Do You Pay Tax on Lottery Winnings in the UK?
You do not normally pay UK Income Tax or Capital Gains Tax on the lottery prize itself.
Whether you win £1 million, £10 million or more, the lottery jackpot itself is generally tax-free. However, tax can become relevant when you save, invest, gift or leave the money to others. This guide explains the UK tax rules.
Interest, investment returns, gifts and your estate can have separate UK tax consequences after you receive the money.
Do You Pay Tax on Lottery Winnings in the UK?
No. If you win the lottery in the UK, the lottery prize itself is generally tax-free. You do not normally pay Income Tax or Capital Gains Tax on National Lottery winnings, whether you win £100, £1 million or a much larger jackpot.
However, tax can become relevant after you receive the money. Interest, dividends, investment gains, rental income and gifts made from your winnings can all have separate tax consequences.
The original UK lottery win is normally received tax-free.
Interest generated after the win can be subject to Income Tax.
Dividends and gains generated from investing the money can be taxable.
Gifts can have Inheritance Tax consequences, particularly if you die within seven years.
Are Lottery Winnings Tax-Free in the UK?
For most people, yes. The important distinction is between winning the money and what happens to the money afterwards.
A genuine lottery prize is not treated in the same way as salary, self-employed profits, savings interest or other taxable income. This means that if you win a National Lottery jackpot, you do not normally lose a percentage of the prize to HMRC simply because you have won it.
Lottery winnings are also not normally subject to Capital Gains Tax. So if you win a £5 million lottery jackpot, you do not calculate a capital gain on the £5 million prize.
What Tax Could You Pay After Winning the Lottery?
The lottery prize may be tax-free, but it does not remain permanently outside the UK tax system once you start using or investing it.
| What happens to the money? | Potential UK tax | General position |
|---|---|---|
| You receive the lottery prize | Income Tax | Normally no tax |
| You receive the lottery prize | Capital Gains Tax | Normally no tax |
| You put the money into savings accounts | Income Tax on interest | May apply |
| You invest in shares | Tax on dividends / Capital Gains Tax | May apply |
| You buy a rental property | Income Tax on rental profits | May apply |
| You later sell investments at a gain | Capital Gains Tax | May apply |
| You give some winnings to family | Inheritance Tax | May become relevant |
| Money remains in your estate when you die | Inheritance Tax | May apply to the estate |
Lottery Winnings and Tax: Three Simple Examples
You win £1 million
You win a £1 million National Lottery prize and receive the money.
The £1 million lottery prize itself is not normally subject to UK Income Tax or Capital Gains Tax.
You earn interest
You place some of the winnings into interest-bearing savings accounts.
The original lottery money remains your capital, but the interest it generates can be taxable income, subject to the normal savings rules and allowances.
You invest the winnings
You use £500,000 of your winnings to purchase investments which subsequently increase in value.
The lottery win itself was tax-free, but future investment income and gains can potentially be taxable.
Do You Pay Tax on Interest From Lottery Winnings?
Potentially, yes. This is one of the most important distinctions for a lottery winner to understand.
HMRC does not normally tax the original lottery prize, but money earned from that prize can be taxable. If you deposit a large jackpot into savings accounts, the interest generated is treated under the normal UK rules for savings income.
The same principle applies if you invest the winnings. Dividends, rental profits and capital gains do not become tax-free simply because the original investment capital came from a lottery win.
Can You Give Lottery Winnings to Family Tax-Free?
You can give money from your lottery winnings to children, relatives, friends or other people. The recipient does not normally pay Income Tax simply because you have given them a cash gift.
However, large gifts can be relevant for Inheritance Tax (IHT).
Individuals currently have an annual Inheritance Tax gift exemption of £3,000. Other exemptions can also be available depending on the circumstances. Larger outright gifts to individuals are commonly treated as potentially exempt transfers.
If you survive for seven years after making such a gift, it will normally fall outside your estate for Inheritance Tax purposes. If you die within seven years, the gift may need to be considered when calculating the Inheritance Tax position.
What Happens to Lottery Winnings When You Die?
Once you have received a lottery prize, the money generally becomes part of your personal wealth in the same way as your other cash, investments and assets.
If some of the winnings remain in your estate when you die, their value can therefore be taken into account when determining whether your estate is liable to Inheritance Tax.
The standard nil-rate band is currently £325,000, although the amount that can ultimately pass without Inheritance Tax can depend on factors including transfers between spouses or civil partners, qualifying gifts to charity and whether the residence nil-rate band is available.
A substantial lottery win can therefore transform an individual who previously had little or no Inheritance Tax exposure into someone for whom estate planning becomes important.
Do Lottery Syndicate Members Pay Tax on Their Winnings?
Where a genuine lottery syndicate buys tickets collectively and wins a prize, the individual members' agreed shares of the lottery winnings are not normally taxed simply because the prize is divided between them.
The key practical issue is being able to demonstrate that the members were participating in the syndicate before the winning ticket was purchased and what each member's entitlement was.
A written syndicate agreement and clear records of contributions and agreed shares can therefore be extremely useful.
Do You Pay Tax on Premium Bond Winnings?
No. Premium Bond prizes are tax-free. They do not need to be included as taxable savings income simply because you have won a Premium Bond prize.
This is different from putting lottery winnings into an ordinary interest-paying bank or building society account, where the interest generated can potentially be taxable.
Do UK Residents Pay Tax on Foreign Lottery Winnings?
Foreign lottery prizes need more care because the rules of the country operating the lottery can be different from the UK rules.
A foreign country may deduct tax from a lottery prize before it is paid. Your UK position can also depend on the exact nature of the prize and your tax circumstances.
Do not assume that a foreign lottery jackpot will receive exactly the same treatment as a UK National Lottery prize. If the amount is significant, obtain advice covering both the country in which the prize arose and your UK tax position.
Do You Have to Tell HMRC If You Win the Lottery?
A straightforward tax-free National Lottery prize does not normally need to be reported as taxable income on a Self Assessment tax return simply because you won it.
However, you may subsequently have reporting obligations if your winnings produce taxable income or gains.
For example, you might need to consider tax reporting if the money subsequently produces significant savings interest, dividends, rental income or taxable capital gains.
What Should You Do After Winning a Large Lottery Prize?
Tax may not be due on the original jackpot, but a very large win can completely change your future tax and estate-planning position.
Retain documentation showing the source and amount of the lottery winnings.
Large cash balances can generate substantial savings income and should also be considered from a financial protection perspective.
Understand the Inheritance Tax implications before transferring substantial sums to family or friends.
A major win can materially change the value of your estate, making your Will and wider estate planning much more important.
Interest, dividends, rental income and capital gains generated after the win may all have their own tax treatment.
For a substantial jackpot, tax advice may need to be coordinated with regulated financial planning and legal advice.
Do You Pay Tax on Lottery Winnings in the UK? Summary
| Question | Short answer |
|---|---|
| Do you pay Income Tax on UK lottery winnings? | No, not normally. |
| Do you pay Capital Gains Tax on the lottery prize? | No, not normally. |
| Is interest earned from lottery winnings taxable? | Potentially, yes. |
| Can investment gains be taxable? | Yes, potentially. |
| Can you give winnings to your family? | Yes, but Inheritance Tax rules should be considered. |
| Can lottery winnings form part of your estate? | Yes. |
| Are Premium Bond prizes taxable? | No. |
| Do you normally report a UK lottery prize as taxable income? | No. |
Lottery Winnings Tax FAQs
Do you pay tax on lottery winnings in the UK?
No. Genuine UK lottery winnings, including National Lottery prizes, are not normally subject to Income Tax or Capital Gains Tax. Tax can become relevant later if you save, invest or give away the money.
How much tax do you pay if you win £1 million on the lottery?
You would not normally pay Income Tax or Capital Gains Tax on the £1 million lottery prize itself. However, interest, dividends, rent or capital gains subsequently generated using that £1 million can potentially be taxable.
How much tax do you pay if you win £10 million on the lottery?
The size of a genuine UK lottery jackpot does not normally change the basic treatment of the prize. A £10 million lottery prize is not normally subject to Income Tax or Capital Gains Tax simply because you won it. A win of this size can, however, create significant future tax and estate-planning considerations.
Does HMRC take a percentage of National Lottery winnings?
No. HMRC does not normally deduct a percentage of your National Lottery jackpot as Income Tax when you receive the prize.
Do I need to declare lottery winnings on my Self Assessment tax return?
A straightforward tax-free lottery prize does not normally need to be entered as taxable income merely because you won it. You may, however, need to report taxable income or gains subsequently generated from the money.
Do I pay tax if I give lottery winnings to my children?
There is not normally an immediate Income Tax charge simply because you give cash to your children. However, gifts can be relevant for Inheritance Tax, including the seven-year rules, so substantial gifts should be considered carefully.
Does the person receiving a gift from my lottery winnings pay tax?
Receiving an outright cash gift does not normally create an Income Tax bill for the recipient simply because they received the money. Once they own it, however, income or gains generated from that money may be taxable in the normal way.
Are EuroMillions winnings tax-free in the UK?
A genuine EuroMillions lottery prize received under the UK lottery arrangements is not normally subject to UK Income Tax or Capital Gains Tax. Different considerations may apply to foreign lottery prizes.
Are scratchcard winnings taxable?
Genuine lottery scratchcard prizes are not normally subject to UK Income Tax or Capital Gains Tax.
Are Premium Bond prizes taxable?
No. Premium Bond prizes are tax-free in the UK.
Can lottery winnings be subject to Inheritance Tax?
Yes. Once received, unspent lottery winnings can form part of your estate. Gifts made from the winnings can also be relevant when calculating Inheritance Tax, depending on the circumstances and timing.
The Bottom Line
So, do you pay tax on lottery winnings in the UK? Generally, no. A genuine UK lottery prize is normally received free from Income Tax and Capital Gains Tax. This applies whether the prize is relatively small or a multimillion-pound jackpot.
The important tax issues usually arise after the win. Savings interest, dividends, rental profits and investment gains can be taxable, while large gifts and money remaining in your estate can have Inheritance Tax implications.
For a substantial lottery win, good tax planning is therefore less about avoiding tax on the jackpot itself and more about managing the wealth created by the jackpot efficiently over the years that follow.
Need Help With the Tax Position After a Windfall?
The Online Accountants can help with UK tax matters arising from savings, investments, capital gains, gifts and estate planning following a significant change in your financial circumstances.
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