Paying off your mortgage, making your family's lives easier and buying a boat are just some ways people would splash the cash after securing a windfall.

We've all dreamed of it. From winning the lottery to receiving your share of an estate following the death of a loved one, windfalls arrive in various amounts and guises.

While they provide a potentially life-changing moment if you use the funds wisely, 70% of lottery winners squander their windfall within 5 years according to Reader's Digest.

As tempting as it may be to spend big after receiving a windfall, opportunities like these are extremely rare and it's important to know your options.

Tax implications

Tax on winnings

Windfalls received through gambling are not treated as income by HMRC and not liable for tax, but how you use the money may attract the Revenue's attention.

For example, let's say you won £15 million on the EuroMillions in May 2012 and paid £50,000 for a painting.

The painting fetches £90,000 at auction 6 years later, leaving you with a £40,000 profit before the £11,700 annual exemption for capital gains tax (CGT) is applied.

CGT would be due on £28,300 of the profit, which is what's left after deducting the 2018/19 exemption from the gain.

Basic rate taxpayers would pay 10% (£2,830) in CGT, while higher and additional rate taxpayers face paying 20% (£5,660).

Tax on inheritance

If someone leaves you all or part of their estate, it will usually be liable for inheritance tax (IHT) at 40% on any sum over the nil-rate threshold of £325,000 in 2018/19.

This applies to inherited money and possessions, although the estate will pay no tax if it is worth less than £325,000. There is also a separate nil-rate threshold (£125,000 in 2018/19) for homes passed on to direct descendants.

IHT due on the estate will already be deducted by the time you receive your windfall.

Tax on sales

If your windfall arrives from selling any shares, assets or businesses you own, you will usually be liable for CGT.

Profits on assets, shares or businesses above the annual £11,700 CGT allowance in 2018/19 will be charged at either 10% (for basic rate taxpayers) or 20% (for higher and additional rate taxpayers).

Gains above the exemption on residential property that is not your main home are taxed at 18% (basic rate taxpayers) or 28% (higher and additional rate taxpayers).

What happens next?


The annual ISA allowance enables you to save up to £20,000 into various ISAs without paying tax.

This may be particularly attractive if you have dependants or if you want to supplement your retirement income.


Investing in stocks and shares is another option, although understanding your appetite for risk and seeking expert advice should be the foundation of any investment strategy.

The old adage of spreading your risk, investing for the long term and remaining calm in the event of market fluctuations would stand you in good stead if you take to the stock market.


You can give away cash or assets worth up to £3,000 each financial year without being subject to IHT, although any amount above this may be liable if you die within 7 years.

This annual exemption can be carried forward by one year if you fail to use it all in a single tax year, while there are other IHT-exempt gifts in addition to the annual exemption.


If you receive a windfall of any size, you could do far worse than ensure you become debt-free as it will make you more financially secure in the longer term.

For homeowners, paying off the mortgage will usually be the main priority. Whatever your level of debt, consider paying it off as quickly as possible.

Talk to us about managing your finances.

Williams Financial Planning Limited logo

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.


By submitting your details you agree to receive email marketing from Williams Financial Planning and have read and understood our Privacy Notice. You can withdraw your consent or change your preferences at any time by emailing us or by clicking the link at the bottom of every email we send you.

You have Successfully Subscribed!