The short version is that winning a prize competition does not usually create a tax bill for an ordinary entrant. Tax becomes a question later, depending on what you do with the prize: sell it, save the money, or give it away. This guide takes each in turn.
Winning the prize itself
HMRC does not treat winnings from prize competitions, prize draws, lotteries and betting as income. If you buy a ticket as a private individual and win a car, a watch or a cash prize, there is no income tax to pay on it and nothing to declare simply because you won. The same applies if you take the cash alternative instead of the prize: it is still winnings, not earnings.
That holds whatever the size of the prize. A £500 win and a house are treated the same way at the moment you win them.
When a prize can count as income
The rule above is about winning by chance as a private individual. A prize can be taxable when it is really a reward for work or part of a business. The main cases are below. If either sounds like you, get advice before assuming the prize is tax-free.
- Prizes connected with your job. A prize you receive from your employer, or because of your employment (a sales incentive, for example), can be treated as a taxable benefit or as pay.
- Prizes connected with a trade. If you run a business and win a prize because of that business, such as a promotion open only to trade customers of a supplier, it may count as a receipt of the business.
Selling a prize: capital gains tax
If you keep a prize, there is nothing more to think about. If you sell it, or give away something other than cash, capital gains tax can come into it. The starting point is that the prize is treated as acquired at its market value on the day you won it. A gain is any increase in value between then and when you sell, so a prize you sell soon after winning usually shows little or no gain. Common prizes break down like this:
| Prize | Capital gains tax when you sell |
|---|---|
| Private car | Exempt. Cars for personal use are not chargeable assets, whatever you sell them for. |
| Watch, clock or other machinery | Generally exempt. HMRC treats machinery, including watches and clocks, as a wasting asset with a predictable life of 50 years or less, and wasting assets are generally exempt unless used in a business. |
| Other personal possessions, such as jewellery or art | Generally exempt if a single item sells for £6,000 or less. Above that, a gain can be taxable, and there are rules for items that form a set. |
| Cash | No gain to tax. Cash is not a chargeable asset in this sense. |
| House, flat or land | A gain can be taxable when you sell. If you live in it as your main home, private residence relief may reduce or remove the gain. |
| Shares, gold bars or other investments | A gain can be taxable. Gold coins that are UK legal tender, such as sovereigns and Britannias, are exempt; other assets have their own rules. |
HMRC's guidance on capital gains tax on personal possessions explains the £6,000 rule and wasting assets. Everyone has an annual tax-free allowance for gains, and the amount has changed several times in recent years, so check the current figure on gov.uk rather than relying on an old one. If you win a property, or something whose value may rise, it is worth recording what it was worth on the day you won it, because that figure is your starting point.
Saving a cash win
Once a cash prize is in the bank, it is your money like any other, and what it earns is taxed in the usual way. Interest is savings income: most people have a Personal Savings Allowance that covers some interest tax-free, and how much depends on your income tax band. Interest on a large win can go past the allowance quickly. Money held in an ISA earns interest and gains free of tax, within the yearly ISA limit. Dividends and gains from investments you buy with your winnings follow the normal rules too. See tax on savings interest on gov.uk for the current position.
Giving winnings away
Sharing a win with family or friends does not cost you tax at the time you give it, and the person receiving a cash gift does not pay income tax on it. The tax to know about is inheritance tax:
- Most gifts to individuals are potentially exempt transfers. If you live for seven years after making the gift, it falls outside your estate for inheritance tax.
- If you die within seven years, the gift can count towards your estate. Where tax is due on it, the amount can be reduced on a sliding scale for gifts made between three and seven years before death.
- Some gifts are exempt straight away: in most cases gifts to a spouse or civil partner, small gifts, gifts within a yearly annual exemption, wedding gifts within set limits, and regular gifts out of surplus income. Check the current limits on gov.uk.
One detail catches people out. Giving away an asset other than cash, such as a property or valuable item you won, counts as disposing of it for capital gains tax, at its market value on the day you give it. A gift to a spouse or civil partner is the main exception. If the prize has risen in value since you won it, there can be tax to pay even though no money changed hands.
Keep a simple record
You do not need to tell HMRC that you won. It still helps to keep the operator's confirmation of the win, the stated prize value or cash alternative, and the date, especially for a large prize. If questions come up later about where money came from, or what a prize was worth when you got it, that record answers them. With a free account, My Entries lets you record a win and its value alongside the entry. For what happens between the draw and the prize reaching you, see what happens when you win.
Quick answers
Are competition winnings taxable in the UK?
For most people, no. Winnings from prize competitions, prize draws and lotteries are not treated as income, so there is no income tax to pay on the prize itself. This is general information, not tax advice.
Do I pay tax if I sell a prize I won?
Often not. Private cars are exempt from capital gains tax, and many personal possessions are covered by exemptions. Gains on things like property or high-value items that are not wasting assets can be taxable, so check with HMRC or an adviser.
Is there tax on giving competition winnings to family?
Giving money away is not taxed when you give it, but a large gift can count towards inheritance tax if you die within seven years. Interest earned on winnings you save is taxable in the usual way.