Do You Pay Tax on Prize Money in the UK in 2025?
Although winning a lottery, a game show or a big contest is exciting, you should think about whether you will have to share the winnings. In the UK, tax constraints on prize money are governed by certain considerations such as type of winning and specific conditions that might apply to the individual. Let’s see how the wind blows in this case.
Let’s start with some good news: In the United Kingdom, for the vast majority of personal prize winnings, there are no taxes levied.
Once you win money on any lottery winnings from gambling with friends or betting at a bookie/casino or winning a sporting prize, there’s no tax to pay. There are few enforced situations where tax may arise though.
When Should You Start Paying Taxes on Your Winnings From Competitions or Contests?
Tax does not apply to most winnings and awards received, but there are a few exceptions. It is important to note this criteria:
Winning From Professional Contests
If you take part in competitions as a career (for example, professional athletes, poker players, golfers) or win a prize linked to your profession (for example an author winning a writing prize), then any winnings you make are treated as income.
Subsequently, these winnings attract Taxes as well as NI contributions just as earning from employment does.
Employer-Related Prizes
Any prize awarded by your employer, such as cash bonuses, holiday vouchers, or expensive electronics are considered taxable benefits by HMRC.
Thus, just as with your salary, you will be taxed on these prizes.
Non-Cash Prizes
Winning prizes such as cars, houses, and other luxury items are devoid of taxes when you win the prize. However, what you do with the prize could result in tax; If you generate income by renting out the item then that income would be taxable, Still alternatively, if you sell the item for a profit, you might be required to pay Capital Gains Tax (CGT) on the profits earned through the sale.
Business Competition Winnings
Business prizes are easier to understand. For example, winning prizes in business competitions like a startup grant or any industry-specific award comes with cash prizes. Prize money is trading income and is thus taxed.
Main Tax Aspects Regarding Prize Money
While most private wins are not taxed, a few winning prizes have implications for tax purposes, and they include the following:
Inheritance Tax (IHT):
If you bequeath a large amount of prize money to your successors they may be liable to pay Inheritance Tax if the entire estate value is more than the IHT threshold limit.
Gift Tax Policies:
In the UK, there is no explicit gift tax, but if one makes substantial gifts and dies within the seven-year period after making the gift, then the gift is potentially chargeable to IHT.
Overseas aspects:
While prizes are generally tax free in the UK if you win a prize from overseas the overseas jurisdiction might tax your prize or charge withholding tax so check the local regulations and for any relevant double taxation agreements.