Don’t Be a Lottery Loser – Protect Your Syndicate Winnings
If you and your employees club together to take a chance on the Lottery by operating a workplace syndicate, but you do not have a formal agreement in place, a large win could cause tax issues in the future.
If ever you are fortunate enough to win the jackpot, the winnings will undoubtedly be collected and distributed by a nominated individual, normally the same person who buys the tickets. However, if by some stroke of misfortune, that person dies within 7 years of the win, HMRC could argue the distributions were technically gifts, particularly if no written agreement exists. In that event the gifts would be treated as failed Potentially Exempt Transfers (PETs) and therefore subject to Inheritance Tax.
Admittedly this is not an everyday occurrence, but it can happen, and HMRC are likely to chase all those who shared in the winnings for any resulting liability.
Verbal agreements can of course be valid, but they are much more difficult to prove, so if you are a part of a syndicate, it is wiser to draw up a document, showing all members, the amount of the stake each pays and how any winnings are to be shared. It should always be updated when new members join to ensure they don’t get caught out by the IHT trap.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.