Tax

Interest earned from peer-to-peer lending is taxable, but whether or not you need to pay any tax depends on your personal circumstances. 

You may not be required to declare your income if your total interest falls within the new Personal Savings Allowance (£1,000 of interest each year for basic rate taxpayers and £500 for higher rate), and/or if your interest is earned within the new Innovative Finance ISA.

If you do need to pay any tax, please note that we do not make any tax deductions from your account, so you'll need to declare your income to HMRC separately. To declare your income you'll need to include your P2P interest on your Self Assessment Tax Return under the section 'Interest and dividends from UK banks, building societies etc'. If you don’t normally complete a Self Assessment Tax Return, you should let your local Tax Office know about your P2P interest so they can advise you. If you pay tax under Pay As You Earn (PAYE) your tax code will then normally be adjusted to collect the tax due on the interest you have earned.

For more information on completing Self Assessment Tax Returns, please click here.

HMRC has provided the following guidance for individuals investing in peer to peer loans, reporting interest and claiming losses from loans that default.

We summarise your total earnings for the tax year in your lender account statement. It remains your responsibility to pay any tax due on interest and other payments received in relation to your loans. We do not deduct any tax from interest or other sums paid to you.

The tax treatment depends on your individual circumstances and may be subject to change in future. If you have any questions on tax you should seek advice from an independent financial or tax advisor, or from HMRC, whose details are set out on their website at hmrc.gov.uk.

Shield contribution adjustments may be applied to your repayments to divert additional funds to the Shield if loan losses on an annual cohort are higher than expected. These adjustments should be treated as “irrecoverable loans” for tax purposes and may therefore be offset against other P2P income. Shield contribution adjustments will be clearly identified on your monthly and annual Lending Works statements. 

Note: This treatment is not relevant for loans held within an ISA where income is not subject to UK income tax.

The tax treatment depends on your individual circumstances and may be subject to change in future. If you have any questions on tax you should seek advice from an independent financial or tax advisor, or from HMRC, whose details are set out on their website at hmrc.gov.uk.

The Innovative Finance ISA (IFISA) launched on 6 April 2016 and sits alongside the traditional cash ISA and stocks & shares ISA.

The IFISA allows savers to use part or all of their annual ISA allowance (£20,000 for 2018/19) to invest in P2P loans (or crowdfunding debentures) and receive tax-free interest and capital gains. IFISAs can only be offered by FCA-regulated platforms.

An ISA investor will be entitled to subscribe new money each year to a maximum of one Innovative Finance ISA, one cash ISA and one stocks and shares ISA. The amount of new money paid into all of the ISAs held by an investor must not exceed the overall ISA subscription limit for the year.

From 6 April 2016, most UK taxpayers will have a new Personal Savings Allowance (PSA). This means that up to £1,000 of income from savings (e.g. any credit interest earned, including P2P income) will be tax-free for basic taxpayers, and up to £500 of savings income will be tax-free for higher rate taxpayers. Additional rate taxpayers are not eligible for the PSA.

You can read more about tax on savings interest and the Personal Savings Allowance here.

The tax treatment of cashback and promotion credits depends on both the nature of the payment and your personal circumstances (for example if you are investing through a company or in the course of your business), but we’ve provided a general summary below:

“Refer a friend” bonuses

Any payments received by an existing customer referring a friend or relative could be liable to income tax and should be declared as income to HMRC.

However, any payments received by a new customer as an inducement to join Lending Works would generally not be liable to income tax and therefore wouldn’t need to be declared as income to HMRC.

Further guidance from HMRC on miscellaneous income can be found here.

Promotion/incentive and other account credits

Promotion/incentive and other account credits generally relate to one-off cashback promotions or adjustments to your account and are generally not liable to income tax. Therefore, these payments wouldn’t need to be declared as income to HMRC.

Further guidance from HMRC on 'cash-backs' can be found here.

To invest with Lending Works, you must be a UK resident. 

Please note: To open a Lending Works ISA, investors do need to be a UK resident (or a Crown servant or their spouse or civil partner).