UK Government Allows Tax Breaks on Peer-to-Peer Returns

The UK Treasury has confirmed that the first GBP 1,000 of peer-to-peer earnings per year will be tax-free from April 2016. As most individual lenders in the UK invest...

Vidur Jain 22nd May 2015

The UK Treasury has confirmed that the first GBP 1,000 of peer-to-peer earnings per year will be tax-free from April 2016. As most individual lenders in the UK invest around GBP 6,000 (Source: The Telegraph) at an average interest rate of 5.1%, the typical return for that investor would be GBP 306. This ruling would make marketplace lending tax-free for most retail lenders, and is a positive step in making market-place lending an attractive choice for lenders.

 

p2p-flowISA

Chancellor George Osborne has confirmed in the budget that the UK government will launch a consultation as to whether investments made through marketplace lending platforms should be eligible for ISAs.

 

The ISA is an Individual Savings Account that is designed to encourage individuals in the UK to invest their capital. It offers lenders tax-breaks on investments made through ISA accounts, thus offering better return on investments.

To be eligible for an ISA however, the investment class is thoroughly scrutinized by the UK government. One of the criteria under consideration is the liquidity of the security.

 

Wellesley is the first marketplace lender in the UK that has qualified for ISA by issuing a 3 year bond at 4% and a 5 year bond at 5.25%, which can be traded on the Irish Stock Exchange. Thus, they securitized the investment and qualified it for ISA Tax Breaks.

 

Issuing a publicly traded bond however is a costly endeavor, and may not be feasible for many of the marketplace lenders in the UK. One possible solution could be to have an active secondary market that can provide liquidity to lenders, allowing them to cash out early if needed.

Cloud Lending Solutions anticipates that the secondary market will be a very important component in the development of marketplace lending, and are offering this as a feature in our products, to ensure that our clients stay ahead of the curve and maintain competitiveness.

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