National lottery syndicate tax rules

Businesses all over the country run lottery syndicates. Find out more about national lottery syndicate tax rules.

In lottery syndicates, staff members usually put in an agreed amount each week and the designated employee will use the funds to buy lottery tickets. If the lucky numbers come up, the prize will be equally shared by the members.


The issue arises when the designated employee collects and transfers the funds to other members. Since the designated employee is technically distributing his own funds, it will then be considered as a Potentially Exempt Transfer (PET) for Inheritance Tax (IHT) purposes. If misfortune strikes and the designated employee dies within seven years, HMRC usually pursues other syndicate members of the failed Potentially Exempt Transfer (PET) for payment.

For example:
Lynda runs the lottery syndicate at XYZ Ltd. They hit the jackpot in May 2017 and win £12 million. Lynda claims the money and pays out £2 million each to the five other members. In August 2017, Lynda dies. Whilst conducting probate, HMRC informs the executors that the distribution of £10 million to other members is a failed PET and that IHT of £3.87 million will be due.

To mitigate this problem, the syndicate should have a written agreement including the details of all syndicate members, their weekly contribution, and their agreed share of any winnings. Additionally, the designated employee should merely act as a nominee on behalf of the other members when collecting the winnings. The distribution of the winnings is then not a gift and so cannot be a failed Potentially Exempt Transfer (PET).