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Tax and peer-to-peer lending
Income tax applies to the interest you earn on peer-to-peer lending, as it does with normal savings accounts. However, if you’re a basic rate taxpayer, you won’t have to pay tax on the first £1,000 of interest you earn each tax year. Higher rate taxpayers can earn up to £500 tax free. This is called the personal savings allowance and it applies to interest from peer-to-peer lending as well as from cash savings. Those with a taxable income of more than £150,000 don’t receive the personal savings allowance.
You don’t need to do anything to claim your personal savings allowance, and if you fill in a self-assessment tax form you should carry on doing this as normal. The deadline to pay any tax you owe for the previous tax year is on 31 January each year. We’ll send you an annual interest statement to help you complete your self-assessment form.
Please note: lenders are responsible for ensuring that they administer their own tax affairs and should seek independent financial advice.
Bad debt tax relief
People who lend through peer-to-peer platforms may be able to offset losses from bad loans against gains from other loans when calculating tax on the interest they’ve earned. You can find more information on the HM Revenue & Customs website. Please note that you can’t offset losses on a loan portfolio held within an Innovative Finance ISA against gains made on loan portfolios held outside it.
Innovative Finance ISA
Since 6 April 2016, peer-to-peer loans have been included in the list of ISA-eligible loans. You can lend up to the £20,000 annual ISA allowance this tax year and receive tax-free* returns through the Innovative Finance ISA (IFISA).
There are four main types of ISA – Cash, Stocks & Shares, Lifetime and the IFISA. You can have more that one ISA but only contribute money to one of each kind during the same tax year.
*Tax treatment depends on the individual circumstances of each lender and may be subject to change in future.