Budget outlines bright future for tax-free P2P loans
By Scott Murphy | Tue 31 Mar 15
By Scott Murphy | Tue 31 Mar 15
There was much to cheer in the final Budget of the Coalition Government for those who invest with peer-to-peer platforms.From a new Personal Savings Allowance to the peer-to-peer ISA consultation outcome and making ISAs more flexible – each of these measures makes investing for the future easier and more rewarding.Many of the measures do not take effect for some time, and the initial consumer benefit is small, but by April next year lenders should feel the full effects.
We’ve summarised some of the changes and the key dates to put in your diary below:
1. Creation of a Personal Savings Allowance
This was the big announcement in this year’s Budget.From April 2016 the first £1000 of interest earned on savings will be tax free (£500 for higher rate tax payers), pulling an estimated 95% of savers out of paying tax on their savings. It has been confirmed by HM Treasury that this will apply to money being lent with peer-to-peer platforms. You can find out more about the Personal Savings Allowance (PSA) here.
2. Outcome of Peer-to-Peer ISA Consultation due in the summer
It was in the 2014 Budget that George Osborne first revealed his plans to include peer-to-peer lending within ISAs. In the time since, the Treasury has held a public consultation to explore how to best implement this. The Chancellor announced that a response to the consultation would be published in summer 2015. Following this it is likely that we will see the first products available in late of 2015. Together with other platforms and the P2PFA we’ve been working hard to present your views and ask the Treasury for a separate Lending ISA. Research the P2PFA conducted with lenders shows considerable support for a separate peer-to-peer ISA. 74% of peer-to-peer lenders like the idea of a separate Lending ISA (LISA) and 81% believe a LISA would introduce more choice across the investments market. You can read more about this research in our previous blogs here and here.
3. Making ISAs more flexible
Under current rules, any money withdrawn from an ISA cannot then be re-deposited in the same tax year without affecting the total contributions limit. The Chancellor announced in the Budget that the government will allow ISA investors to withdraw and re-deposit money from their cash ISA without this counting towards their annual ISA subscription limit, as long as the repayment is made in the same tax year as the withdrawal. These changes will be introduced for cash ISAs in autumn 2015, following a consultation. Whilst peer-to-peer is not yet included in this plan this is an area we will monitor closely and engage with the Treasury on.
4. Bad debt relief on peer-to-peer loans
Under the current system of taxation, lenders on several peer-to-peer platforms (but crucially not RateSetter*) are unable to offset any losses incurred through bad debt against other P2P income. For instance a lender expecting a return of 6% who experiences a default and instead receives only 4% will still pay tax on the 6% return. The Chancellor highlighted in the Autumn Statement last year that he would introduce a bad debt tax relief and this has been confirmed in the Budget. The new rule should be effective from April 2016 (following consultation), however individuals will be allowed to make a claim for relief on losses incurred from April 2015 onwards. You can read more about HMRC’s plans here.
*At RateSetter our Provision Fund automatically steps in in the event of a borrower default. As a result there has been no impact of a borrower default on the expected return to date. However the Provision Fund is not a guarantee and your capital is at risk.
5. Increasing the ISA contributions limit to £15,240
The annual allowance will increase from April 2015 in accordance with September’s inflation level and Treasury rounding guidelines from £15,000 to £15,240. This will mean consumers will be able to save a little extra tax free when peer-to-peer lending becomes ISA eligible.
So what do you think of the new Personal Savings Allowance? Will you invest more through peer-to-peer? Do you welcome the new flexibilities for ISAs? Let us know your thoughts below.
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