At some point, it’s likely you’ve daydreamed about what you would do with your winnings if you were to strike lucky and win a lottery.
Apart from the obvious expenditures, booking the holiday of a lifetime or turning your dreams of setting up your own business into a reality, giving some of your winnings to your family, friends, or a charity has probably crossed your mind too.
But who exactly can you share your lottery winnings with, and are there any implications if you decide to generously split the jackpot with your nearest and dearest?
While UK lottery winnings are tax-free, if you choose to split your prize money with those closest to you, there could be tax implications.
There is no specific gift tax in the UK. Instead, gifts made to individuals are subject to inheritance tax at rates of up to 40% if the donor dies within seven years of making the gift.
In the UK, any win that takes the value of your estate above £325,000 for individuals or £650,000 for couples incurs an inheritance tax of 40 percent, or 36 percent if at least ten percent of the total is donated to charity.
So gifting millions will not save you from paying IHT. HMRC will tax you on a sliding scale should you die within seven years of gifting any cash to friends and relatives – a 20% reduction in tax if you die between three and four years after gifting, a 40% reduction between four and five years, etc.
Syndicates beware!
If your winnings are part of a syndicate, this can cause problems if the person who receives the cheque dies within seven years of the win. However, they can protect themselves against IHT liabilities by drafting a simple agreement. As per HMRC, “No liability to inheritance tax arises on winnings by a football pool, National Lottery, or similar syndicate provided that the winnings are paid out in accordance with the terms of an agreement drawn up before the win.
Struck lottery gold and planning to share the wealth? Proceed with caution – HMRC may have an unexpected gift for you!
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