“Beast Games” – who really won? Examining tax and competition wins

It’s not only the contestants’ dubious blue track suits which distinguishes Beast Games from University Challenge (which is, of course, the greatest quiz show on earth); it’s also the prizes and their tax treatment. Were the contestants on University Challenge to win millions of pounds, (as opposed to getting to hold a silver plated trophy and shake Amol Rajan’s hand), then they would be able to keep it all. Whereas the (spoiler alert) $10 million winner of Beast Games is likely to have paid around $2.5 million straight away to the U.S. tax man.

Tax and winnings in the UK

The UK is one of the jurisdictions in the world where prize money and lottery winnings are generally free of tax at the point that they are awarded. As with all things tax-related, the devil is in the detail. So, what are the rules you need to know if you are lucky enough to get a windfall?

Lottery monies: are completely tax-free in the UK. From a £10 scratch card to the jackpot on EuroMillions, it’s all yours to keep. But beware if you buy a lottery ticket abroad when on holiday as other jurisdictions have their own tax laws. For example, if you win a lottery in the United States, you will typically be liable to pay withholding tax, (which can be as much as 24% for non-resident “aliens”).

Gambling winnings: also, completely tax-free. Whether you back the winner at Aintree or your number comes up on the roulette wheel, unlike the US tax authorities, HMRC will not look to share in your good fortune.

Competition prizes: here things are a little more nuanced. If the competition is entered in your personal capacity (“spot the ball” anyone?), the prize is free of tax irrespective of the amount won. But if the competition is related to your trade or profession (for example, a writer wins a poetry competition with a cash prize, or an athlete wins prize money in their event), then these winnings are treated as income and taxed accordingly. This extends to foreign competitors at UK events, meaning Janick Sinner will need to pay income tax on his recent Wimbledon prize pot. It is likely that the Italian will pay the UK Treasury up to 45% (after related expenses are deducted) of his £3 million winnings.

In the case of awards and incentives given by employers to their staff, for example, in recognition of the number of sales achieved by the sales staff, then if the recipient is a member of staff a charge as employment income may arise. If the incentive is in the form of goods or services, the cash value of the gift is calculated and taxed accordingly.

Only if there is no cash value, for example, if the incentive is a non-transferable holiday with no cash alternative, is no tax due because the prize has no “money’s worth”.

Whilst prize money is (generally) tax-free in the UK, the taxman is likely to still get a share further down the line, depending upon what you do with the money.

What are you doing with your winnings?

If you choose to share your winnings with friends and family, then any gifts you make over the annual allowance of £3000 is potentially subject to inheritance tax should you fail to survive for seven years from the date of the gift (unless the recipient is your spouse or legal civil partner, in which case there are not tax implications to your generosity).

If, on the other hand, you use the money to purchase shares or other investments which then go up in value, you could be looking at paying capital gains tax on the increase when you come to sell them on and any dividends or interest that the investments generate in the meantime, are taxed as income in the usual way.

What about prizes which aren’t in the form of cash? If you win the Star Prize (car or caravan, say) on a game show and then sell it on at a profit, again, capital gains tax may be payable. And if you win the Omaze house, it’s yours tax free, unless you rent it out, in which case you are going to be taxed on the rental income. Also, if it is not your main home and you sell it at a gain, you will be looking at paying capital gains tax on the difference between the sale price and its value when you first won it.

I am already looking forward to the next season of Beast Games and whilst you are unlikely to take home those sorts of sums, you may be lucky enough to win some cash or prizes of your own. In which case, just make sure you get professional advice, so you maximise the benefit whilst complying with all the rules.

We can’t help you word the perfect tiebreaker, but the Succession & Tax team at Blake Morgan can help you navigate the tax rules and advise you on some estate planning.