29th October 2020
|Lottery News, Lottery Tips, Lottery Winners

Do I have to pay taxes on lottery winnings?

Are lottery winnings tax free? All myths clarified here.

Did you know that there is no tax on a lottery win and it doesn't matter which lottery is involved? If players from Germany play lottery that is played abroad, they do not have to pay any taxes on their winnings. This article will explain you the tax situation of the winnings.

Many lottery players are not sure whether they have to pay taxes on their lottery winnings or whether they are tax free. Did you know that lottery winnings in your country might not have to be taxed? Although there is a very strict income tax law in Germany, you don’t have to tax your winnings as income. Since the winnings from a lottery are not part of this German law, it does not matter which lottery the winnings come from. More specifically, if players from Europe, Germany or anywhere in the world play a lottery that is played in another country, they do not have to pay taxes from their winnings. In this article we will clarify the tax situation of winnings.

For example, lottery winnings in Germany do not have to be taxed.

Even a lottery player who makes a larger profit of several million does not have to pay tax on this money as income. The winnings do not have to be added to other income either. There is a very extensive income tax law in Germany in which all kinds of income are listed. A profit from lottery is not to be found in this law, however. That’s why it doesn’t matter which lottery the winnings come from.

It can be the German Lotto, Euromillion lottery, the scratch ticket or an international lottery. If a player for example from Germany takes part in a lottery that is played in another country, he does not have to pay taxes for a prize. This also applies if the country in question actually has to pay a profit tax.

Why do I not have to pay taxes on lottery winnings?

There is a very simple explanation for this. Of course, the state also wants to generate revenue from lotteries. If the winnings were taxed now, the treasury could only profit if there are actually winners. This uncertainty is far too great. Therefore, the state already levies so-called gambling taxes on the fees for the betting series or for the tickets. This means that the state benefits from every lottery in any case.

Myths about due income taxes

It is still reported in many places that the profit sum must be spent within one year so that it is not taxable. This assertion is not true at all and is rather misleading. Only the investment of the winning amount is taxable. If the profit is invested for example on a savings account, then the so-called final withholding tax takes effect. For the money on the savings account the bank usually grants interest. If the interest amount exceeds the exemption amount, then 25 percent of the interest income must be taxed. With the current low savings interest rates, however, several million must already be in the account before the final withholding tax even takes effect.

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However, if the money is not parked in a savings account, but used to purchase a property, a real estate transfer tax is payable. This tax depends on the value of the property. The same also applies if someone makes himself independent with his profit from the lottery and, for example, opens a business. Not the actual profit from the lottery must be taxed, but only the things that are acquired with it or possibly also the interest.

Conclusion

The fact that a lottery win is subject to taxes is a myth that has been around for many years. But no lottery player has to worry about having to pay part of the tax if he wins a big prize. There is basically no tax on a lottery win. It doesn’t matter at all which lottery is involved.

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Charles Edwards