20th March 2015
The government has confirmed interest earned through peer-to-peer lending will be eligible for the personal savings allowance tax break announced in the Budget.
Chancellor George Osborne used his Budget this week to introduce a ‘personal savings allowance’ that will allow savers to accrue up to £1,000 a year in interest tax free on savings held outside of tax-free wrappers such as ISAs. Higher rate taxpayers will benefit from an allowance of £500.
The tax break does not apply to income earned through shares or funds but the Treasury has said it will allow interest earned through peer-to-peer lending to be included.
The peer-to-peer lending industry loaned £1.7 billion in 2014 by matching up individual borrowers with businesses and other individuals who wanted to borrow money.
Giles Andrews, chief executive of the most well-known peer-to-peer lending site Zopa, said that it was ‘fantastic news’ that first £1,000 of peer-to-peer income earned would be tax-free.
‘The news is very exciting as the vast majority of Zopa’s 58,000 lenders can now lend tax-free from April,’ he said. ‘I expect this will be a huge boost to the industry and will attract a large number of new customers to start lending and earn returns of 5%-plus tax-free.’
Including peer-to-peer in the personal savings allowance is further confirmation of the government’s backing of the industry. It is also consulting on making peer-to-peer loans eligbile for ISA inclusion and a third ISA specifically tailored to peer-to-peer has also been mooted.