Do You Pay Tax on Lottery Winnings in the UK? The Complete Guide
Find out if you pay tax on lottery winnings in the UK. Our guide explains the rules for Income Tax, Inheritance Tax (IHT), and gifting your winnings.
It’s a life-changing moment, the thrill of checking your ticket and realising you’ve won a significant prize on the National Lottery or EuroMillions. Amid the dreams of new houses, dream holidays, and helping family, a practical question quickly follows: "How much of this will I have to give to the taxman?"
For winners in the UK, the initial answer brings a huge sigh of relief. But the story doesn't end there. At Plouta, our mission is to provide you with the clear, impartial knowledge to manage your finances at every stage of life. This guide will explain the tax rules for lottery winnings in the UK, from the tax-free status of the prize itself to the crucial tax implications you need to be aware of once the money is in your bank account.
What You Will Learn in This Guide ⤵
The Main Question Answered: Is the lottery prize itself taxable?
The "Hidden" Taxes: How your winnings can become subject to Inheritance Tax, Income Tax, and Capital Gains Tax.
Gifting Your Winnings: The rules you must know before sharing your new-found wealth.
Key Takeaways: A simple summary of the key tax rules for lottery winners.
The Big Answer: Are Lottery Winnings Taxable in the UK?
Let's get straight to the point. In the UK, winnings from the National Lottery, EuroMillions, Set For Life, Thunderball, and other major UK gambling activities are completely free of tax at the point of receipt.
This means if you win a £10 million jackpot, you receive the full £10 million. There is no Income Tax, Capital Gains Tax, or any other tax to pay on the prize itself. This is because lottery and gambling winnings are not considered "income" for tax purposes by HMRC.
However, the tax-free status applies only to the moment you win. Once the money becomes part of your assets, it can trigger other taxes.
The Secondary Taxes: How Your Winnings Can Be Taxed Later
Once your jackpot is in your bank account, it is no longer "lottery winnings"; it is now your capital. From that point on, it is subject to the same tax rules as any other money you have.
1. Inheritance Tax (IHT) - The Most Important Consideration
This is the biggest tax issue for lottery winners. While you get to enjoy the money tax-free, it now forms part of your estate.
What is an estate? It's the total value of all your assets (money, property, possessions) when you pass away.
How does IHT work? In the UK, every individual has a tax-free allowance called the "nil-rate band" (currently £325,000 for 2025/26). Any value in your estate above this threshold is typically taxed at a flat rate of 40%.
The Impact: A £10 million lottery win would put your estate far over the threshold, meaning a significant portion of your remaining wealth could be subject to IHT upon your death.
Gifting Your Winnings & The 7-Year Rule
A natural first instinct is to share your wealth with family and friends. This is where you must be careful.
Tax-Free Gift Allowances: You can make some small gifts that are immediately exempt from IHT (e.g., your £3,000 annual exemption).
Large Gifts (Potentially Exempt Transfers - PETs): Any large gift you make (like giving your child £100,000 for a house deposit) is a PET.
The 7-Year Rule: For the gift to be completely exempt from IHT and removed from your estate, you must live for seven years after making it. If you pass away within seven years, the value of the gift is added back to your estate for IHT calculations. Taper relief may apply if you die between 3 and 7 years after making the gift.
Plouta Tip: For any significant lottery winner, seeking professional financial and legal advice on estate planning and trusts is the single most important step to manage IHT liability.
2. Income Tax on Interest Earned
Once you deposit your winnings in a bank or savings account, the money will start earning interest. This interest is taxable income.
The Personal Savings Allowance (PSA): Most people have a PSA that allows them to earn some interest tax-free each year.
Basic-rate (20%) taxpayers: £1,000 allowance.
Higher-rate (40%) taxpayers: £500 allowance.
Additional-rate (45%) taxpayers: £0 allowance.
The Impact: A multi-million-pound sum, even in a standard savings account, will generate interest that far exceeds these allowances. For example, £5 million in an account paying 3% interest would generate £150,000 of interest per year. As a high earner, you would pay income tax (at 40% or 45%) on almost all of this interest.
Solution: Using tax-efficient wrappers like ISAs is crucial. You can place £20,000 of your winnings into an ISA each year, where all future growth and interest will be tax-free.
3. Capital Gains Tax (CGT) on Assets You Buy
If you use your lottery winnings to buy assets that later increase in value, you may have to pay Capital Gains Tax when you sell them.
How it works: CGT is a tax on the profit you make when you sell an asset.
Examples:
Shares: You use £100,000 of your winnings to buy shares in a company. A few years later, you sell them for £150,000. The £50,000 profit (gain) is subject to CGT.
Property: You buy a second home or a buy-to-let property. When you sell it, the increase in its value is subject to CGT. (Note: You do not pay CGT on the sale of your main home).
The Allowance: Everyone has an annual CGT allowance (currently £3,000 for 2025/26). You only pay tax on gains above this amount.
Know Where You Stand: Take the Plouta Financial Wellness Survey
Taking our Financial Wellness Survey is a great first step. It will help you reflect on your habits and identify the key areas to focus on in your journey towards financial freedom.
Key Takeaways
The Prize is Tax-Free: Lottery winnings in the UK are not subject to tax when you receive them.
Your Estate is Not: The winnings immediately become part of your estate and are potentially liable for 40% Inheritance Tax (IHT) on your death.
Gifting Has Rules: Large gifts to family are only fully IHT-free if you live for seven years after making them.
Interest is Taxable: The interest you earn on your winnings in a bank account is subject to Income Tax.
Profits from Assets are Taxable: If you invest your winnings, the profits may be subject to Capital Gains Tax when you sell the assets.
Seek Professional Advice: For any significant win, professional financial and legal advice is essential to manage your new wealth effectively.
Conclusion: A Tax-Free Prize, But Not a Tax-Free Life
Winning the lottery in the UK is a fantastic, tax-free event that gives you an incredible financial head start. The prize money itself is all yours. However, the choices you make after you win will determine your long-term tax position.
Your new-found wealth becomes part of your financial life and is subject to the same rules of the road as any other capital. By understanding the implications of Inheritance Tax, planning your gifts carefully, using tax-efficient accounts like ISAs, and being aware of Capital Gains Tax, you can make smart decisions to protect your fortune. The first call you should make after claiming your prize is to a team of trusted, regulated financial and legal advisers.
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Disclaimer: This guide provides general information about the taxation of lottery winnings in the UK, based on rules and allowances known as of July 2025. It is for informational and educational purposes only and does not constitute financial or tax advice. Tax laws are complex and subject to change. Your personal circumstances will significantly affect any tax liability. Always seek professional, regulated financial and legal advice tailored to your specific situation, especially after a significant financial event like a lottery win.