The Tax Implications for Britain's Biggest Lottery Winners

Instant multi-millionaires David and Carol Martin have won more money than most of us can possibly imagine after scooping the country’s biggest ever lottery payout.
 
Jan. 27, 2016 - PRLog -- The couple, from the Scottish Borders, have described the win as "life-changing” and talked about how they will use their new-found riches to help family, friends and their community.

But, with great amounts of money come great complications, to paraphrase Spiderman. Unused to handling such mammoth amounts of cash, it’s likely the Martins, who have earned a modest amount in their careers, working for a housing association and a chemist, will feel bewildered about the implications of having £33m in the bank.

So without in any way wanting to be a killjoy just what should they consider when it comes to paying tax, to giving lump sums to their nearest and dearest and to updating their wills - assuming that they have them?

Well, first of all, HM Revenue & Customs doesn’t regard lottery winnings as income, so the couple’s prize is tax free. But, there will certainly be tax ramifications once they’ve banked their winnings.

The money will then form part of David and Carol’s estate, meaning they will be liable for 40% inheritance tax (IHT), given that it will significantly take the value of their estate above the current tax threshold of £325,000 each - £650,000 in total. Even the rules announced by Chancellor George Osborne in his summer budget will not help them unless the estates are on death radically reduced.

The family of another lottery winner faced a huge tax bill when he died shortly after scooping £3.5m.

D-Day veteran Bob Bradley won the jackpot on his 83rd birthday, making him the third oldest winner in the UK, but died soon after the win after returning from a family holiday.

He had already showered his family with gifts, buying £70,000 cars, an eight-berth motor home and ploughing cash into a family hairdressing business.

But, because Bob died less than seven years after making the gifts, the gifts would have been liable for inheritance tax.

While David and Carol are also clearly generous and plan to help their family and friends, gifting millions will help save them from paying IHT, if they survive seven years from the date of the gifts.

Gifts of £3,000 per donor can be made each tax year.

But the Lottery’s latest winners will be looking to hand over much more than that. Should the worst happen and they die within seven years of gifting cash to loved ones, tax will potentially be payable on a sliding scale.

This issue could cause problems for informal lottery syndicates in particular. David and Carol won half of the £66m jackpot and no one yet knows if the second winning lottery ticket belongs to an individual or a syndicate.

Problems can arise if the person who receives the cheque from the Lottery to then share with other syndicate members dies within seven years of the win.

The other winners may well have already spent all of their cash on yachts, designer handbags and holiday homes, but they may find themselves having to pay IHT. Anyone running a syndicate should download the official agreement from the National Lottery website to protect themselves.

David and Carol will also need to make sure they have an up-to-date will in place. Recent High Court statistics, released at the end of 2015, showed that the number of will disputes doubled from 2013 to 2014. Just imagine the kind of family feud which could ensue over £33m.

They might want to think about setting up a trust for any younger members of their family to whom they would like to pass on their cash. That way, they can stipulate how much they get and at what age, rather than hand it over in one go.

While the pair have been married for 28 years, Lottery winning couples who aren’t married or in a civil partnership might be recommended to consider tying the knot.

If either David or Carol die and leave everything to the other, there would be no IHT payable as they would benefit from the spouse exemption.

Anyone who is lucky enough to benefit from a lottery gift would be wise to take some advice before spending all of their money, or they could find some of it has to make its way back to the government.

Having said all of that, we’re sure no one would be complaining about taking on the tax implications involved if they were lucky enough to be a recipient of David and Carol’s generosity. Even with 40% inheritance tax they/their friends and family still get to keep 60%.

For further information on tax planning simply call on 01325 341500

Contact
Latimer Hinks Solicitors
5-8 Priestgate, Darlington, DL1 1NL
***@latimerhinks.co.uk
End
Source: » Follow
Email:***@latimerhinks.co.uk Email Verified
Tags:Lottery, Tax Planning, Solicitors
Industry:Legal
Account Email Address Verified     Account Phone Number Verified     Disclaimer     Report Abuse



Like PRLog?
9K2K1K
Click to Share