How Much Tax Do You Pay on Lottery Winnings in the UK?
The very simple answer is zero. You don’t have to pay any tax on lottery winnings in the UK. That’s right, regardless of the amount of money you win on the lottery, you will receive the full prize money amount, free of any tax. No income tax, no capital gains tax, nothing.
This is true for any amounts that you win on the UK lottery, but also anything that you win on the EuroMillions as well. This is different to other countries, in particular the US where almost half of any lottery winnings need to be paid to the tax man.
With that said, it doesn’t mean you’re free of tax for good. Winning a large amount of money means you’ll probably be on the hook for some tax in the future. Let us explain.
Tax on Interest and Dividends
When you receive a lottery win, you’ll need to put the money somewhere. This could be in a bank account, some sort of fixed deposit or you might choose to invest the money. No matter where you put it, you will start to generate some form of income or return on that money.
This return could be pretty low, like 0.50% interest on a bank account. It could be pretty high, like 7 or 8% investing in the stock market. Either way, this interest or return that you generate on your lottery winnings will be subject to tax.
Interest from a bank account and dividend payments from shares could be liable for income tax, and selling investments once they’ve gone up in value will usually mean you need to pay some capital gains tax. Either way, if you’ve won a large sum of money (like millions) you’ll definitely want to take some professional advice to make sure you’re doing things to keep your tax bill down.
Inheritance Tax on Lottery Winnings
Another type of tax that could become an issue with a lottery win is inheritance tax (IHT). Any lottery winnings that you have accrued will form part of your estate once you pass away. If this takes your estate over the IHT threshold, (£500k for a single homeowner or £1m for a home owning couple) then your estate will pay 40% tax on any amount above this once you pass away.
Again, there are things you can do to reduce this potential tax bill to your family, and it’s another area where it is well worth paying someone for a bit of advice.
Summary
In the UK, you don’t pay any form of tax on lottery winnings, including EuroMillions. This means that anything you win in a lottery is fully yours to keep. Once you have won the money though, anything that it generates through bank interest, share dividends or investment growth will be subject to tax.
If you come into a large amount of money through a lottery win, it’s highly recommended that you speak to a professional like a Financial Advisor or an Accountant, to make sure you are setting things up as efficiently as possible.
