Nobody in their right mind would turn their nose up at a lottery prize for tax reasons. If the game is organised by the ONLAE (National Body for State Lotteries and Gaming) -Football pools, Primitiva, Bono Loto and National Lottery-, or the Regional Autonomies, or the Red Cross or the National Organisation for the Blind then you�re in luck. In all the above cases the prize is tax free for Spanish citizens. But quite another thing is the money that the prize may earn in the following years.

Let�s imagine that you bought a ticket for the National Lottery and won the Gordo de Navidad (the Big One, or the Christmas Jackpot). Suddenly you find yourself with 180,396 euros (30 million pesetas) in your pocket. Your stroke of luck has opened up a world of financial opportunities to you, but whatever you do with your money now is going to have serious tax repercussions from next year on.

Regardless of the tax free nature of the prize, you lucky Jackpot winner will have to add the 180.396 euros obtained to your patrimony. The first 108.238 euros (18 million pesetas) of this amount is tax free, but on the remaining 72.158 euros (12 million pesetas) you would have to pay 0.2% to the taxman, a trifling 144 euros (24,000 pesetas).

Let�s buy a house
To get the best tax treatment for your prize you should invest the money in your habitual residence and not sell it for three years. In other words if you won the Jackpot last December 22nd and put all your 180.396 euros prize money into buying a house, you would not have to declare any capital gain on your income tax return until the year after you sold the house. The capital gain is the difference between the officially declared sale price of the house and the price which you declared when you bought it.

In this type of three-sided transaction (buyer-seller-taxman) it is not uncommon for the official price of the house to differ from the real price paid, since dropping the official price will usually be in the interest of both seller and buyer (one pays less in taxes and notary fees and the other reduces the amount of any capital gain). However, if you decide to sell your house before the three years are up, you will have to pay tax at a rate of between 18 and 48%, depending on your personal income.

If, lucky jackpot winner, you decide to invest your prize in a second home, you will have to pay between 1% and 2% of the cadastra or rated value of the house as real estate considered as taxable income in your income tax declaration. If you decide to buy a flat and rent it out, then you will have to pay tax on the revenue obtained, once you have deducted any community expenses.

I�ll share it out among my kids.
If you decide to share out your prize money among your children, grandchildren and other relatives, the prize will still be tax free for the prize winner. However the beneficiaries of your generous gift will have to make their own donation to the Inland Revenue in the form of Inheritance and Gift Tax. For example, for a gift of 12,026 euros (two million pesetas), the beneficiaries would have to pay 955 euros (158,695 pesetas).

I�ll keep it in the bank
The director of your bank branch will rub his hands with glee and try and persuade you to deposit your fortune in a high yield account. If you agree, the taxman will want 18% of the interest received (if you won the Christmas Jackpot, and you got round to the bank that same day, December 22nd, only earnings for the nine remaining days of the fiscal year would be taxable for that year). In your income tax return for the following year you would pay Inland Revenue 18% of the total yield. In other words, if you deposited the whole 180,396 euros (30 million pesetas) of your winnings, and supposing an APR of 7%, your contribution to the taxman in the second year would be 2,273 euros (378,000 pesetas).

Let�s play the stock market
Flushed with your success on the lottery you decide to try your luck on the trading floor and you opt for investing all your new found wealth (those, sadly imaginary, 180,396 euros or 30 million pesetas) on the stock market. Now everything you make on that money -once you sell your shares- will be taxable in the eyes of the Inland Revenue. Which is to say that if you make 3,005 euros (500,000 pesetas) on the market, you should include that amount on your tax return, either as part of the general tax base or the special tax base, depending on whether you sold the shares in the first year or in subsequent years.

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