Two separate questions come up after a big win: whether the prize itself is taxed, and how the money is taxed once it starts earning interest or investment returns.
The prize
SARS’s capital gains tax guide discusses gambling, games and competitions, including the National Lottery. How a particular receipt is treated depends on the facts and on the law in force, so do not rely on a general statement that “all winnings are tax-free”. Foreign prizes and bookmaker winnings can be treated differently from a South African National Lottery prize.
Interest and investment income
Once a prize is invested, the interest, dividends, rental income and capital gains it produces are taxed in the usual way. Plan for this before committing money to long-term spending.
Getting advice
For a large prize, speak to a registered tax practitioner or a financial adviser before making major decisions, and keep records of the claim and payment.
This guide is general information and not tax advice.