18th April 2017
There’s nothing quite like the thought of winning big money on the lottery, which is why many people increase their chances by joining a lottery syndicate.
This is a group of people who pay in an equal amount each week for a certain number of tickets. Should the syndicate win, the prize is split equally between the members of the group.
In many cases, this is an informal arrangement – people come and go from the group, and the chances of winning are still very low; small winnings often go on additional tickets for the following week. If a syndicate does get a big win, however, there is an inheritance tax implication of which everyone should be aware.
Usually, one person is nominated to buy the tickets and claim any winnings. In the event of a substantial win, that person will collect the winnings and divide it between the others. This is where a problem can occur. For the purposes of inheritance tax, this giving-away of money could constitute a Potentially Exempt Transfer (PET). This would make each portion of the winnings liable for inheritance tax should the nominated person die within seven years of making the transfers. The tax burden on that person’s relatives would be huge, and HMRC would want to claim that tax back from the original recipients of the money.
A simple solution
The National Lottery has a syndicate agreement which can be downloaded from its website. This agreement allows groups of people to form a syndicate. You can play across all National Lottery games and you can buy tickets online for your group.
The syndicate agreement is simple – you nominate a syndicate manager to set up the team, collect money, check results and keep everyone up to date. The syndicate doesn’t need to register with Camelot, but the syndicate manager needs to register as a player in order to buy tickets online.
Every member should sign the syndicate agreement, and if someone new joins the group, or someone leaves, the agreement should be updated.
This simple written agreement means that the syndicate manager is acting as a nominee for the group, simply collecting any winnings on the group’s behalf. That in turn means that distributing the winnings doesn’t count as a gift, which then means that there is no inheritance tax liability.
If you operate a lottery syndicate and you don’t have an agreement in writing, we would advise that you put one in place as soon as possible.