As we are a UK based company and most of our customer base is in the UK. Lots of our customers may have been wondering about the specific tax implications of winning a large lottery jackpot here in good old Blighty.
Even more so after becoming aware of how much our cousins over the pond have been systematically bent over by the State Government and the IRS upon winning the MegaMillions or Powerball.
This weekend gone by
, boasts another $1 Billion plus MegaMillions prize ticket. But how much will that lucky winner actually take home? If they take the cash option, straight away they will forfeit a casual $261(ish) million.
To play MegaMillions for a chance to be that lucky $1 Billion winner visit:
In this blog post, we will look at the ways a UK onepoundlotto.com player could save on taxes, avoid them, and even claim them back.
Taxes on Lottery Winnings in Britain
As the majority of Lottery players in the UK play on the ever-popular Euromillions and National Lottery (lotto) they will no doubt be wondering if the Inland revenue will also take a big tax bite out of their ass like the IRS.
In short, the answer is no! Surprisingly the UK has some of the most relaxed laws surrounding the gambling industry in the world. Since the introduction of the 2005 Gambling Act, gambling has become a legal activity in the UK. Online gambling is well regulated by the Gambling Commission and it produces a safe environment for both the players and operators. The Inland Revenue does not see gambling winnings, be it a lottery win, a win on the GG’s, or even game show winnings as a source of income. As such it is not subject to any tax.
Taxes on Savings Accounts
If you decided to put your windfall in a savings account which is the most likely immediate option. Which let’s be honest unless you invested/blew it all immediately, gave it away, stuffed it in a mattress, or put it in some kind of trust. Then the taxman will be able to get to you. But don’t despair. Your windfall will be safe.
The interest that you accumulate from that amount will be subject to Income tax. This is also true of bonds, other bank accounts, building society savings and interest on other currencies held in UK accounts.
There is a savings allowance though. Meaning that basic rate taxpayers in the UK can now earn £1000 of interest tax-free. Higher rate taxpayers £500. This equates to £181 810 for a basic tax ratepayer on an easy access savings account of 0.55%. Obviously, on a higher savings rate, this would be substantially less.
It’s worth noting that your tax bracket would depend on the level of your winnings and also if you kept your job or not.
If you won a million pounds, quit your job you could earn a living off the interest and still be a basic rate taxpayer. But arguably dull if you are a spender and arguably not very savvy if you are a saver. As you could get your money to work for you better in other ways.
How can I avoid paying tax on lottery winnings?
There are several ways that you could avoid paying tax on your lottery winnings. Obviously, you could invest the money, but then any money that you make from those investments would ultimately be taxed. But if you invested well, you could make much more than you would have if you kept your windfall in savings. After all “Money makes money!”
The most obvious way to avoid any taxes is to create a Trust. Once your funds (assets) are transferred into it, they will not be legally viewed as being in your possession. Hence they will remain non-taxable by HMRC. You will lose a degree of control over your assets though. So it is up to you to decide what level of control you would like to remain. If you read my blog post on “What to do if I win the lottery in 2021 ” ( https://one-pound-blog.jamiedeakindesign.com/What-to-do-if-I-win-the-lottery-in-2021/ ) it has lots of useful advice on how to set yourself up after a big lottery win.
The second most obvious way you could avoid tax is to start a Limited company. This is a separate legal entity to the owner or shareholders, the ‘veil of incorporation’ protects you as the business owner and your assets from claims arising during the normal course of business.
There are other entities such as Family Investment Companies and Foundations. Both of which do not link assets to the founders.
Either way, we would advise you to seek professional help if you were serious about trying to avoid taxes. Or regardless of what you decide to do with your money.
How can I give money to my family after winning the lottery?
If you are a horrible spinster or misanthrope, with no family or just have no desire to waste any of your precious time on them. Or maybe you are estranged, an eremite, or an utter recluse. Then…. maybe skip this next section.
For some, however, the first thing they would think to do if they won the lottery would be to gift lottery winnings to family.
In the UK, a study of three thousand lottery winners revealed that more than £1.31billion was gifted to friends and family.
However, even a charitable donation to the family can have tax implications. For example, in the UK any gift, (be it property or cash) over £325K will be subject to inheritance tax if you should kick the bucket within the next seven years.
Spouses or civil partners are except though, as long as they are UK residents.
In this event, the tax bill will be passed to your family.
If you die within three years of the gift they will pay 40% and anything between three and seven years is taxed on a sliding scale, known as taper relief:
Years Between Gift and Death Tax Paid
Less than 3 40%
3 - 4 32%
4 - 5 24%
5 - 6 16%
6 - 7 8%
7 or more 0%
There are some small exceptions to the rule:
Every year you are able to gift £3,000 without it being included in your £325K threshold.
Birthday and Christmas pressies from your income. They could be classed as normal gifts, but only if they are deemed not to affect your standard of living after. Elaborate gifts would definitely raise the tax man’s eyebrows.
Payments to help living costs, for example, care of a disabled relative.
Gifts to charities and political parties.
Our advice put your money in a trust and leave it. As mentioned above, the trust will not form part of your estate and when you peg it, and your family will avoid inheritance tax. It is quite common for people to leave money in trust funds for their children or grand kids to inherit when they reach 18, 21, or 50 (if they are a wild child).
One Pound Lotto Taxation Process?
We do not add any additional taxes or charges to our lottery wins. As we buy official lottery tickets then we are subject to the same taxes that the official lottery charges its players.
Currently, the only lotteries that charge taxes are the American ones, and now since1st March 2020 the Italian ones. So for onepoundlotto currently, that is the Powerball, MegaMillions, Superenalotto, and soon the NY lottery.
The new national lottery tax on the Italian lotteries is 20% for anything over € 500, we are looking into being able to claim this back for a UK player.
The tax on US lotteries is a bit more brutal. First, you will automatically lose 24% to the IRS. This is known as daylight robbery…I mean Federal Withholding.
Next, the IRS again will say “hey! you are now a high earner!” and put you on a top tax rate of 37% taking an additional 13%
Finally, the state where you purchased the ticket could charge you anywhere between 0 and 10.76% as a state tax.
We see “taxation” as a dirty word.! So we are going to help you. Let’s work backward.
Where ever you play from with One Pound Lotto (even the US) you will not have to pay State Tax. Why? Because we purchase all of our customer’s US tickets in the State of Delaware. Delaware is one of the few states in the US to charge 0% State Lottery Tax.
If you are a UK player (not US sorry) then you will not be classed as a high earner, as once again the UK does not recognise gambling revenue as earnings. It is worth checking local laws in your domicile.
If you are a UK player (again not the US sorry), then it is possible to claim back the 24% Federal Withholding from the IRS. We can not do this for you or even promise that you can achieve it. But what I can say is that it has been done before, and we have worked with operators that have done it successfully. It may cost you a bit of money, but if you have just won $1billion then I think for $240million it is worth spending the money. Plus it’s a drop in the ocean to what you’ll gain.
So in short if you won on onepoundlotto.com, you could potentially retain 100% of your cash lump sum. Even the official operators can not offer you that. The big lotto betting sites, like the one that rhymes with Yobbo Brand will even charge you 38%. Even though you are not buying a ticket from the official lottery in the US.
It is crazy to say, but as a US citizen you are likely to be much better off buying a ticket at One Pound Lotto than from an official Powerball or MegaMillions retailer in the United States
When should I start to claim?
All winnings on One Pound Lotto have to be claimed within 60 days. Most winners are claiming their lottery winnings within the first few days or weeks. You can take as long as you want to claim it up until the 60 day period. Some people like to get sound financial advice first. I wouldn’t advise leaving it to the wire though. Force Majeure or life could get in the way.
Starting the claims process
As advised in our “What To Do If I Win The Lottery In 2021” blog post: Get a trusted team behind you. You will need lawyers, accountants, and an investment advisor to join your team. Contact the One Pound Lotto team as soon as you are ready.
It is likely that we will already have contacted you. If you have won we will make repeated attempts to contact you (probably because we will be just as excited as you are). This is why it is always advisable to register accounts with valid up-to-date details.
The validation appointment
If you have won a Jackpot you will be asked to attend a validation appointment at our Portsmouth (UK) office with two forms of ID. The appointment can also be a presentation ceremony, however, you have the right to decline this and remain anonymous. If you so wish
Receiving your winnings
Whilst we aim to pay all winnings to our Players as swiftly as possible, please be aware that all lotteries operate differently and this could take up to 60 days. All winnings will be paid in this period unless there are extenuating circumstances. All determined winnings will be paid into the winners nominated bank account.
Q: Do you get taxed if you win EuroJackpot in the UK?
A: No, not in the UK
If you wish to play Europe’s biggest lottery please visit:
Q: What is the tax on MegaMillions winnings?
A: The following table gives an example of the MegaMillions taxation as described earlier. This shows what you would expect to pay if you were not a One Pound Lotto player.
|Element||$1.6 billion MegaMillions Jackpot|
|Lump sum option||$904 million|
|24% federal tax withholding||Less $217 million
|13% more (diff. Bet. 24% and the top tax rate of 37%||Less $117.5 million|
|State tax of 0% to 10.76||Less 0 to $97.2 million|
|After-tax bottom line||$472.3million to $569.5|