El Gordo de Navidad is much more than a lottery draw. It is a cultural tradition that has taken root in Spain, causing many people to share tenths with family, friends or co-workers as a symbol of hope and good wishes sets.
However, this gesture of good will, so common these days, can become a serious problem if the prize is not collected correctly. The Technicians of the Ministry of Finance (Gestha) they insist in which the way of collecting and distributing the prize is key to not ending up paying more taxes than necessary nor face subsequent tax penalties.
Treasury is one more to distribute. In the Christmas Lottery, prizes over 40,000 euros are taxed at 20% on the part that exceeds that amount, so that a tenth awarded with the Gordo de Navidad (400,000 euros) becomes 328,000 euros net for the winner and 72,000 euros for the Treasury.
Aitor Fernández, head of the tax area of TaxDownexplains that “the first 40,000 are always exempt. That leaves us with a total of 360,000 euros on which the 20% tax is applied,” and remembers that the bank already delivers the money with the withholding applied, so that the winning person directly receives the net amount.
How to collect a shared tenth without fears. The Tax Agency recommends that, when a tenth is shared by several people, all participants identify themselves at the time of collection or designate a representative with notarial power to certify the identity and the percentage of prize that corresponds to each participant. Fernández details that the banking entity is in charge of taking the data of “how many are the winners, how it is distributed and is in charge of settling the tax before the Administration, giving each beneficiary their already net part.”
If all the participants are identified, the financial institution distributes the exemption of the first 40,000 euros among all of them and applies to each one the corresponding withholding on the part of the prize that corresponds to them, in proportion to their percentage. Thus, they all appear as beneficiaries before the Treasury, which can verify that each one has supported 20% of what exceeds 40,000 euros without there being any double taxation or suspicion of donations covert
The mistake that one collects and then distributes. The TaxDown expert warns that the greatest risk appears when a single participant collects the tenth in his name without leaving a record that this prize will be distributed later, and then distributes the money through transfers to the rest. “It is a mistake that can be made and should be avoided at all costs,” emphasizes Fernández.
In that case, both the 40,000 euro exemption and the 20% withholding apply only to the person listed as the prize holder, while subsequent movements can be seen as cash gifts. As Fernández details, for the Tax Agency “subsequent transfers corresponding to a hypothetical distribution would be considered donations, which consequently implies that they are taxed.”
This means that whoever receives the money could have to pay the Inheritance and Donation Tax, with the added problem that many autonomous communities only reduce this tax among first-degree relatives, while among friends, unmarried couples or other distant relatives the tax cost can skyrocket.
A prize free of charge. Regarding the treatment of the prize in personal income tax, the TaxDown tax expert recalls that, once the withholding corresponding to the special tax Regarding lotteries, the amount obtained is not taxed again in the Income Tax return and does not affect access to scholarships or aid that depend on income, although it may influence the Wealth Tax of those who are obliged to present it.
Fernández emphasizes that “what they pay us is what we can dispose of” and that there will only be new taxation if that money is invested and generates interest or capital gains, which, then yes, will have to be declared in the personal income tax as capital gains, but not for the money received from the lottery. For this reason, the expert remembers that it is best not to rush when investing that money and it is best to think about it calmly. At the end of the day, letting it “rest” is not going to entail an additional tax expense.
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Image | Flickr (Aiaraldea Gaur eta Hemen)
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