The Treasury has now confirmed that the £1,000 tax free personal savings allowance will be applied to P2P lending from next year. According to HMT, 95% of people in the country receive less than £1,000 in interest a year. So that’s 95% of savers who do not pay income tax on interest that has been generated through traditional products. The range of products that that will benefit from tax-free interest up to £1,000 (£500 for higher rate taxpayers) has now been extended to include peer-to-peer loans.
This is another facet of thegovernment’sgrandplan to mould London into the global capital of financial innovation. Yesterday’s Budget was chock-full of good news for the alternative finance space. The £1k interest allowance extension only sweetens the deal.
Funding Circle was understandably excited by the reform. The average amount being lent by individual investors through the platform is around £8k – meaning a large proportion of its lenders stand to benefit. James Meekings, Co-Founder of Funding Circle, explained the significance of the rule change:
"This is absolutely fantastic news for the 37,000 people who have earned an average return of 6.3% (after fees and bad debt) by lending to small businesses through Funding Circle. The average investor lends approximately £8,000, so more than 80 per cent of investors can now lend tax free. It will have a hugely positive impact on the industry and is a win-win-win for investors, borrowers and the economy at large."
Giles Andrews, Co-Founder and CEO at Zopa, was equally enthusiastic:
"It's fantastic news that The Treasury has confirmed the new savings tax break will also apply to interest earned from P2P lending. The news is very exciting as the vast majority of Zopa's 58,000 lenders can now lend tax free from next April. I expect this will be a huge boost to the industry and will attract a large number of new consumers to start lending and earn returns of 5+% tax free."