Something came to mind last night when I was buying a EuroMillions ticket on the National Lottery app on my phone. In each draw, I buy one line and my friend does likewise. The deal is that whatever we win, we split between the two of us.
Then I thought about what would happen if we won the jackpot. Under the terms of our long-standing verbal agreement, I would give my friend half of the winnings. But would he be liable to pay gift tax on that money?
How could we prove to the National Lottery, or, more importantly, the Revenue Commissioners, that this has been our agreement for years? We haven’t won just yet – but it always helps to be prepared. – JC
It always does help to be prepared, not least as winning the sort of money available in a EuroMillions draw can be enough to put intolerable strain on even the closest friendships or family relationships.
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And you are quite right to be concerned. Under Irish tax law, lottery winnings are exempt from tax, but only to the holder or holders of the winning ticket.
Any money given by the holder of a winning ticket to another person, such as your friend or vice versa, is taxable as a gift, with the recipient liable to capital acquisitions tax above and beyond any tax-free threshold space they may have available.
In the case of a friend rather than a close family member, the maximum winnings either of you could get from the other tax-free would be €20,000 – assuming that tax-free window has not already been used to accommodate inheritances and gifts in excess of €3,000 from anyone other than a parent or close blood relation, such as a sibling, a grandparent or an aunt or uncle.
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In the context of a EuroMillions win, at least in the context of winning the jackpot, that €20,000 window would not go very far.
So what should you do now?
In the old days, the first bit of advice would be to ensure that both of you sign the winning ticket as proof of ownership, but even that has been turned on its head in our digital age. Anyone purchasing lottery tickets through the National Lottery app, as a growing number of players now do, cannot print out a physical ticket.
That makes it even more important that you have a formal written agreement in place between the two of you.
Without it, it is hard to see how you might persuade Revenue of the terms of your arrangement. And given the sums involved, it is not one of those things that Revenue can afford to let pass.
Equally important, a written agreement gives both of you the assurance that your arrangement will be honoured regardless of events. As I said previously, the history of lotteries is littered with examples of people who thought they had watertight understandings on future winnings, only to find that they lose out when the big day finally comes their way.
So how do you go about it, and what should any agreement cover?
At a minimum, the agreement needs to list who is part of the arrangement and how any prize will be shared. What lottery games would it cover?
Is your agreement only in relation to EuroMillions, or have you also agreed to share ticket purchase and winnings on other lottery games? The agreement should be crystal clear on these points. You don’t want one of you to win, say, the biweekly Lotto draw, only to find the other claiming a part of the prize if it was never intended that your arrangement went further than EuroMillions.
Are both of you expected to buy a ticket for each draw? What happens if one or the other of you forgets, is away on holidays, or is sick in hospital? Does the missing syndicate member forfeit their right to their equal share of the winnings, or is their share reduced because of the circumstances?
Also, this agreement covers the one line each of you is buying. What happens if, as is quite likely, one or both of you invest in other lines. How do you decide which line of numbers was the one selected for your “syndicate”, and which are held individually?
An agreement should sensibly cover all these issues. Also, is your arrangement time limited – maybe agreed year by year? If so, the agreement should state when it expires.
You don’t need a solicitor to do this, but you do need whatever language is used to be clear and not open to multiple interpretations.
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Once you have agreed what the terms should be and have them written down, the original document should be signed by both of you. Each of you should keep a copy of it, with the original stored somewhere safe in case it is ever required to satisfy Revenue (or anyone else) of the nature of your arrangement.
Then you can sit back and dream of what you might do with that elusive jackpot.
Of course, it’s always worth remembering what the odds are before you invest your cash – together or otherwise.
According to the EuroMillions website, based on results since September 2016, your odds of winning the big jackpot for successfully choosing five winning numbers and two lucky stars are one in 139.8 million-odd.
Those odds improve dramatically if you are talking about the prize for five correct numbers and just one lucky star, where the average win is just north of €400,000, but you are still talking about a one-in-seven-million chance. It becomes a one-in-3.1-million chance if you settle for just getting the five numbers right, where history says you could win close to €1 million but, on average, you would likely be collecting something closer to €44,000.
It might be worth looking at investments with better odds.
Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or by email to dominic.coyle@irishtimes.com with a contact phone number. This column is a reader service and is not intended to replace professional advice.
