I run the office lottery syndicate for my workmates. We pool all our prizes, which are held as cash. We are now considering putting the prize money into Premium Bonds, which will be held in my name. What are the tax implications in the very unlikely event that we win the £1 million jackpot? There are eight of us in the syndicate and the prize would be shared equally.
Premium Bonds can only be held by an individual, and any prize money only goes to the bond holder – in this case, yourself. There is no tax to pay on the prize, and your colleagues’ share of the prize money would not be subject to income tax.
However, there may be inheritance tax implications for you. Each individual payment to your colleagues will be viewed as a gift and may be taken into account in calculating the taxable value of your estate if you were to die within seven years.
You have an annual gift allowance of £3,000, and you can also bring forward any unused allowance from the previous tax year.
While small prizes will not a have significant effect individually, large prizes – or a frequent number of smaller ones – might start to have more of an impact on your tax liability.