The only two things certain in this life are death and taxes. Whilst the former is completely inevitable, the latter has some flexibility.
We have so many kinds of taxes on our income. Players of the lottery must question if their winnings are taxable or not. A jackpot is still technically an income, whether you work for it or not.
Thankfully, the good news is that winnings from the lottery are not taxed.
Don’t sigh a sigh of relief just yet, though. There are a few things you should be aware of before buying your next lottery ticket.
There ARE Taxes AFTER You Win a Jackpot
The win amount itself is free from tax. But that win will produce an income via interest. This interest will be taxed as part of your usual income tax. As advised by Andy Carter, Senior Winners’ Advisor from the National Lottery.
So What Does That Mean?
You have money in your current account currently and you’ll be getting interest from your bank, be it monthly or yearly.
The amount taken is typically tiny, depending on individual circumstances. The amount given to will be available after a tax deduction.
If you notice your interest has increased significantly, the interest is still going to be taxed. But think of it as additional free money, even if you don’t get the full amount. Check out this post to learn more about tax on online gambling winnings.
How About Other Taxes?
Income tax has been covered and now you know you get the full prize awarded to you. How about other taxes? If your circumstance changes, there are other taxes to be aware of.
You could gift your money to someone else if you’re really generous, but this will be subject to gift tax.
Gift tax applies to the giving of money to someone in a sum above £3,000 in the period of one year. What you can do though is apply for exemption from this under ‘surplus income’. These might have to be regular payments, and you’ll have to provide proof of these; like payments into your child’s bank account.
If you have an estate totalling more than £325k when you pass away, the inheritance left to your loved ones will be subject to an inheritance tax. This tax will be 40% of the money above the £325k. So, if you had £350k, you’d pay inheritance tax on £25k. You could reduce this if you leave over 10% of your estate to a charity.
Another method of reducing inheritance tax is gifting the money, like before, which is subject to the tax if you gift one person over £3k annually. Otherwise, if you’re married or in a civil partnership, the living partner can get half your estate and not have to pay any inheritance tax.
Luckily, lottery winnings aren’t subject to capital gains tax, as with any other form of gambling winnings. It’s definitely worth getting in touch with a financial advisor to make sure your loved ones are safe.