Are Lottery Winnings Taxed Differently For Expats?

Winning a life-changing sum of money is the ultimate “what if” for many people, but for the global expat community, that dream comes with a messy side of paperwork. If you are living outside your home country, the excitement of a jackpot can quickly be dampened by a simple, nagging question: who gets a slice of the pie?

The Residency Riddle

There’s this common idea that lottery tax is strictly about where you bought the ticket, but that’s rarely the whole story. In reality, your physical location and legal tax status often matter just as much. The way lottery prizes are handled can shift wildly depending on where you’re actually hanging your hat when those numbers finally hit. While some countries, including the UK, do not tax lottery prizes themselves, others treat winnings as taxable income or apply withholding taxes at source. It creates this massive headache for expats, especially if you’re playing a game in one country while technically being a tax resident in another. It’s exactly why experts are always on about checking the local rules—even if you don’t owe a dime, the taxman usually still wants the paperwork.

A Tale of Two Systems

Take the United States, for instance. The IRS is famously thorough. For a U.S. citizen living in, say, Dubai—where there is no personal income tax—a win in a local raffle or an international lottery is still considered taxable income back in the States. Things have actually gotten a bit stickier this year with the updated regulations on gambling losses. Starting this year, federal guidelines have shifted how casual gamblers can offset their wins, tightening the belt on what counts as a deductible loss. It might feel like a minor technicality, but if you’re a regular, you could end up paying tax on “phantom income” even if you only just broke even over the year.

On the flip side, many European nations, like Spain, take their cut right at the source. If you win more than 40,000 Euros in a Spanish lottery, the authorities automatically withhold 20%. As an expat, you might not have to file an extra return in Spain for that win, but you still have to worry about whether your home country wants to come back for a second helping.

Don’t Forget the “Afterlife” of the Win

The tax collector doesn’t just walk away once the prize is in your hand. Have you thought about what happens when that money starts sitting in a bank account? Even in the UK, where the initial prize is tax-free, the interest that money earns is absolutely taxable.

• Interest Income: Once the cash is in your account, it’s just capital. Any interest it generates is subject to standard income tax.
• Inheritance Tax: If you’re a UK resident and you leave that windfall to your heirs, it’s part of your estate. That’s a potential tax bill for your loved ones if you haven’t planned for it.
• Gifting: Want to share the wealth? Be careful. If you hand over a large chunk of cash and then happen to pass away within a few years, the taxman might pull that gift right back into the net depending on where you’re domiciled.

It’s a lot to wrap your head around. The best move is to keep every receipt and consult a pro who understands the specific treaty between your host country and your home.

What do you think? If you hit the jackpot tomorrow, would the tax bill change where you choose to live? Let us know your thoughts in the comments below!