Do you pay taxes on lottery and scratch card wins?

Is the lottery tax-free?

The short answer is yes; you won’t pay any tax on your lottery winnings. Unlike many other countries, where lottery winnings are taxable, in the UK the winner takes it all. If you’re wanting to play the lottery or scratch cards, you can rest easy knowing there won’t be any tax on your potential winnings.

How much tax do you pay if you win £1 million?

Nothing! Not a penny... And this is true whether you win £1, £1 million or £100 million - lottery winnings are not considered to be income by HMRC but have the status of windfalls, and are therefore exempt from all the levies normally applied to earnings. Of course, this stops being the case as soon as you start trying to spend or save any of it - there are limits to tax-free savings in the UK, gifts above a threshold (currently £3,000) are subject to Capital Gains tax - for the recipient, not the donor, and unless you buy nothing but food and children's clothes with your winnings you'll be paying VAT on any spree you go on...

The tax you might pay after you win

This is where tax-free winnings start to get more complicated, not least because the tax you have to pay once you start to move that money around becomes subject to different types and rates of tax, depending on what you do with it.

Whether you save it, give it away or buy property, HMRC will not only expect a cut, but they may not take it automatically, and calculating, declaring and paying it will become your responsibility...

A topline view is that apart from tax-free savings like Premium Bonds and ISAs, which have a yearly and/or total deposit cap, any interest earned on winnings held in a UK savings account is subject to Income Tax; income from investments or a buy-to-let bought with winnings is taxable and for both Personal Allowance thresholds apply.

Capital Gains Tax is applicable (NB not applied, you need to calculate it and report it yourself, or hire a competent professional like a tax lawyer or accountant to do it for you) to valuables worth £6,000 or more if you sell them at a profit. Your car (if you have only one) is excluded, but expect to pay 18% of anything you earn this way as a Basic-rate taxpayer, and 24% is the slice HMRC requires from Higher-rate and additional-rate taxpayers.

Currently an individual's CGT tax-free allowance is £3,000 per year. Assets shared with a spouse benefit from both people's allowances and the total allowance here is £6,000.

HMRC have a free to use CGT calculator which you can find here.

Can you give away lottery winnings tax-free?

The previously stated CGT amount equally applies to gifts. So you can give away as much of your jackpot to different individuals in £3,000 parcels as you want. Of course, it's the recipient of the gift who is liable to pay tax, not you as the donor. And you can donate to charity tax-free (and get tax relief equal to the sum donated).

Gifts are a specific type of taxable asset-passing; Inheritance Tax is a different category to Capital Gains and has its own rules. It is a reasonable assumption that any truly sizeable lottery win may be too large to dispose of, whether that means spending or donating it all, in a single generation.

The biggest difference between Capital Gains and Inheritance Tax is the 7-year -rule; you can spare your inheritors from a growing proportion of the taxable value of their inheritance by gifting it to them... and surviving the gift by seven full years. The 7-year-rule is a sliding scale - applied as shown below:

It should be noted, however, that there are strict conditions to gifting in order to defray Inheritance Tax. If you give your children your house, you can't just keep living in it - HMRC could require proof that you paid the new owners rent if you do.

Do lottery providers pay tax?

Yes. So, instead of the UK Government charging the player, they instead take a portion from the industry. This is called the “point of consumption tax”. This came into effect in the late 1990s, and has since been updated to include online gambling. 

Any gambling activity in the UK requires a licence, and for-profit gambling companies are charged a 15% - 21% tax on all profits. 

Lottery tickets and scratch cards are subject to strict regulations

The UK’s gambling watchdog, the Gambling Commission, ensures that there are well-regulated spaces for all types of gambling. Charity lottery providers like The Health Lottery are a crucial fundraising tool as they provide lottery tickets and scratch cards that raise money for good causes, and they are also subject to the same strict set of rules and regulations.

No matter how much you win, you will not have to put the amount on your tax return. Just be aware that expensive purchases may be subject to fraud and anti-money laundering checks. It’s a good idea to keep a record of your winnings, and it’s always better to bet with licensed providers, as you’ll have no trouble explaining where your winnings originated from.

Lottery and scratch card tax FAQs

Do you have to declare lottery winnings to HMRC?

No, there is no requirement to declare lottery winnings on a UK tax return. They are not treated as income. You may, however, need to declare interest or income the money subsequently earns.

How can you legally reduce tax on lottery winnings?

There is no tax to avoid on the win itself. Tax only applies to what the money earns afterwards, and the usual allowances apply - ISAs, the Personal Savings Allowance and the annual gift allowance. These are all completely legal methods of reducing tax exposure, sanctioned by HMRC.

Do you pay tax on Powerball or other foreign lottery wins?

Many non-UK lotteries are taxed at source, but the UK Powerball jackpot is not presented in the same way as it is in America. The US jackpot is announced as a pre-tax dollar annuity; the UK headline is an estimated post-tax sterling amount, which is paid out over 30 years. The tax payable on US lottery wins varies from state to state, and Americans also get the option of a single jackpot payment not available to Powerball players in the UK.

Do you pay tax on National Lottery winnings?

No. Winnings on the National Lottery, Euromillions and charity lotteries such as The Health Lottery are all tax-free in the UK.

Do you pay tax on other gambling or betting winnings in the UK?

No, gambling and betting winnings are tax-free for players in the UK in the same way lottery winnings are. Players should nonetheless be GambleAware and only play within their means.