March 24, 2015
The budget threw up a number of interesting scenarios for P2P lenders as well as savers in general.
To summarise the budget, we have outlined how it could impact the industry:
In line with the new budget, savers will be exempt from tax on the first £1,000 of interest earned (reduced to £500 for higher rate payers).
This is a real bonus for savers in the UK as most households have less than £50,000 in savings and would have to be earning 2% interest on this to get even after tax.
As most saving products in the UK don’t come close to 2%, this provides some welcome relief for savers. Well done, George!
It seems that from now on there will be a flexible ISA that allows a multitude of products rather than just cash or stocks and shares. This follows on from the Chancellor previously announcing that P2P will be allowed into ISAs, of which the discussion continues as to how this will work.
The other good news regarding the flexible ISA is that investors can withdraw sums during the year and then replace them, without losing the allowance.
The Chancellor used the budget to confirm that bad debts on loans made through P2P lending can be offset against P2P interest. I have been working with HMRC and their working group to shape how this works and I’m pleased that HMRC have been very responsive in listening to the industry.
In simple terms, if you have earned 10% interest but lost 1% in capital, you will now only be taxed on 9% of the interest, subject to the new personal allowance. However, if the P2P platform charges you a fee for lending, that fee cannot be offset.
At Assetz Capital we don’t charge fees to lenders and as such you will get the full benefit of the offset.
Finally, the Chancellor has announced that P2P may be subject to withholding tax. This is where the platform would have to withhold tax on interest earned at the basic rate, much like the banks would do.
HMRC have been exercising care and management in this regard while they look to consult with platforms to find a solution and set new laws in place.
I’m pleased to be part of that consultation to ensure that the policy works for the industry.