One way of selling a property during a recession is to make it the prize in a raffle draw. But, such house competitions run the risk of falling foul of Gambling Act 2005. As we noted in our February 2009 issue (p4) a lottery will be illegal if winning depends on ‘chance’. Accordingly, there must be some question posed of entrants that requires some skill to answer.

As a follow up to our earlier note, it is also worth bearing in mind the tax complications that can arise with a house raffle:

VAT: if the raffle is structured as a lawful prize competition then there will be a VAT liability on the value of all the tickets sold. Although there are certain exemptions for lotteries, the likelihood is that HMRC will wish to charge VAT on all the proceeds. In any event, if the raffle turns out not to be a lawful prize competition, but is instead an illegal lottery, then there is a danger of lottery tax (12%) being charged instead;

Income tax: if the seller makes a profit then he has to pay income tax on those profits (arising from his trade of operating a house raffle). In practice, this means the seller will have to pay income tax on the excess receipts above the current market value of the property (plus any VAT that may have been paid);

Capital gains: the seller will be liable to CGT, subject to the private residence relief being available. But, if that is not available then CGT will be payable up to the open market value of the property (with the excess being charged to income tax – see above).

Needless to say, those tempted by the idea of raffling a property that is difficult to sell should bear in mind not only the danger of being found to have run an illegal lottery, but also the tax complications that will arise.