Taxation of prizes

Taxation of prizes

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I haven't seen them around for a few years, but a while back you used to get offers to participate in prize draws typically run by Reader's Digest or similar, where you had to go through lots of exciting bits of paper and yes/no options, one of the options being to choose between a cash lump sum of (say) £100K or an annuity of £10K for life (assuming you won, of course).

The lump sum was clearly tax free, although any income arising from investing it would clearly be taxable, and that would extend to an annuity purchased out of the £100K prize.

What confused me (and was NEVER explained in the documents) was whether the annuity of £10K would constitute taxable income if that was your primary choice of prize. That could be a significant factor in the decision.

Would the annuity be taxable? And what principle would bring it into charge (given the general principle that prizes are exempt)?
Clint Westwood

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By User deleted
13th Mar 2005 17:40

it would be taxable....
S18(3) ICTA 1988 sets out the basis for a charge under Sch D Case III which charges to tax 'any annuity or other annual payment'.

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