Selling a Property by Lottery

Dec 9, 2022


Could selling your property by lottery save you tax?

House raffles have increased in popularity over the last decade, with many homeowners opting to sell their house by lottery after struggling to find a buyer on the open market, or in the hopes of raising more money than the house is worth. But what are the benefits, and the potential pitfalls, of selling your home in this way?

The aim of these prize draws is to reduce or eliminate tax bills that would otherwise occur if you sell your property for more than you initially paid for it. But is it really as easy as it sounds? Early success stories certainly made the process seem simple. In 2017, Dunstan Low managed to raise almost £1 million when selling his six-bedroom Lancashire manor house worth £845,000 via raffle. Without any legal advice and just one press release in the local newspaper, he managed to make £103,000 worth of ticket sales in a single day.

However, there have been plenty of failed raffles, either due to not selling enough tickets to reach the reserve, or by falling foul of advertising and gambling laws. The sellers in these cases were often the victims of trolling and harassment by dissatisfied ticket holders, after giving a cash prize instead, or refunding all tickets.


So how does selling your property by lottery work?

If you’re looking to operate a public lottery or raffle, you’re required to register for lottery duty and draw up legal terms and conditions for the scheme. This can be very difficult and expensive as it’s a very specialised area so you will most likely need to seek expert advice. You will also be liable to pay lottery duty (12%) on the value of the tickets sold, which will eat into your income.

If the raffle is deemed illegal by the Gambling Commission, you could be looking at a fine of up to £5,000 and a 51-week prison sentence. The Gambling Commission has shut down more than 100 unlawful property raffles since house prices dropped in 2008.

“We have intervened in schemes where we have had concerns that they are unlawful lotteries. These have either closed or been changed so they are compliant with the law,” a spokesperson said. “We will monitor the situation in the coming months and will continue to step in if we have concerns that any free draw or competition is in fact an illegal lottery.”

The problem many organisers will face is that, in general, the Gambling Commission and HMRC will only allow the lawful selling of tickets for raffles and lotteries if they’re for ‘good causes’ – such as charities, local authorities and not-for-profits.


Selling by lottery won’t avoid CGT

HMRC will usually take the view that operating a lottery for gain or profit constitutes a business – even if it’s a one off. When you transfer personally owned assets to a business, tax rules treat it as if it were a sale/purchase of trading at market value (MV). You won’t avoid capital gains tax (CGT) due to being deemed to have sold your property for what it’s really worth before the lottery takes place.

If your ticket sales exceed the MV of the property, the excess is taxable profit on which you are required to pay income tax at up to 45%, depending on any other income you may have. On the plus side, if you manage to sell enough tickets to more than cover your costs plus the sum you were hoping to gain from the property, you will be much better off than you would be by selling your property the conventional way. However, there is no tax advantage.


Who is the real winner?

In the end, the only participant that really gains is the winning ticket holder. Not only have they got the bargain of the century but they also don’t have to pay stamp duty land tax (or the equivalent in Scotland & Wales) due to the price of the ticket being below the level at which it kicks in. The downside is, if they decide to sell the property they might receive a higher tax bill (unless they have occupied it as their home). This is due to the price of the ticket, when they sell the property for more than they paid for it, the difference is taxable.

What are your thoughts on selling properties by lottery? Is it a risk worth taking? Have your say in the comments or join the discussion on Linkedin.


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