Do You Have To Pay Tax On Winnings From Set For Life?
By
HuutiMoney
If you are wondering whether or not you need to pay tax on your winnings from Set For Life, you will find the answer to your question in the following blog post where we will analyse all the possible aspects of using your winnings that may or may not involve a tax deduction
Do You Have To Pay Tax On Winnings From Set For Life?
No, you don’t have to pay tax on your winnings from lottery winnings such as Set For Life. According to the UK taxation system, winnings from games of chance such as a lottery are not subject to taxation.
The same rule applies even if you win the top prize for Set For Life. The structure of the game has been designed in such a way that winnings are taxed at the source without the winner having to pay a tax on what they receive.
Therefore, prize winners of Set For Life receive £10,000 after tax deduction each month in the case of the top prize and this amount remains tax-free from the recipient’s end.
It is important to note that Set For Life is an annuity-based lottery. This means that the winnings are paid in instalments and not in a lump sum amount.
However, if you save those winnings in a bank account, the interest that you earn on the amount saved will be considered as earnings by HMRC and will be subject to taxation.
Similarly, if you use your winnings to make an investment, the returns from your investment will be taxed.
If you purchase a property from your Set For Life winnings and rent it out, the rental income you gain will be subject to taxation.
Since the winnings from Set For Life are paid in instalments, top prize winners can claim £10,000 each month for up to 30 years. Should they pass away during this time, the remaining amount of the annuity will be passed on to their estate. In this case, there will be Inheritance Tax levied on the amount that is transferred to the deceased’s estate.
How Is Tax Applied If You Invest Your Set For Life Winnings?
If you choose to invest your winnings from Set For Life, you can expect to be liable for taxes on the earnings. This includes:
- Income Tax
- Capital GainsTax
- Dividend Tax
If you invest your winnings from Set For Life in a business or even if you derive interest on them, your earnings will be considered an income and will be subject to income tax.
Similarly, if you invest the amount in purchasing stocks and shares, or you buy an asset, you will have to pay capital gains tax if you make a profit from the sale of such investments and the amount is more than £12,300.
In the case of purchasing stocks or shares, you would also be earning a dividend as a shareholder. Therefore, if you start earning a dividend of more than £2,000 within a tax term, you will be required to pay dividend tax.
How Much Do You Have To Pay In Taxes If You Invest Your Winnings From Set For Life?
The amount that you pay in taxes if you invest your winnings from Set For Life will depend on the type of investment you make.
If your earnings are subject to income tax, you will be required to pay according to the following rates:
- for earnings between £12,571 to £50,270, you will pay a basic rate tax of 20%
- for earnings between £50,271 to £150,000, you will pay a higher rate tax of 40%
- for earnings of more than £150,000, you will pay 45% of the amount as tax
In the case of capital gains tax, you will only be required to pay tax on the gains from the sale of any of the following assets; provided the amount exceeds £12,300:
- possessions such as jewellery or watches that are valued at more than £6,000
- property that does not count as your main home
- shares, stocks and ISAs
- business assets such as land or machinery
- cryptocurrencies
If you invest your winnings in shares and earn a dividend of more than £2,000, you will pay a dividend tax according to the following rates:
- if you are a basic rate taxpayer, you will pay a Dividend Tax of 8.75%
- if you are a higher-rate taxpayer, you will pay a Dividend Tax of 33.75%
- if you are an additional rate taxpayer, you will pay a Dividend Tax of 39.35%
Conclusion:
The above discussion helps to conclude that your winnings from Set For Life are taxed at the source and this is the reason why you don’t have to pay tax on them. It is only in certain cases and your choice of investments or savings that can lead to a tax being applied to your lottery winnings.
References:
About Set For Life | Games | The National Lottery