Now that we’ve explored the basic concepts of what peer to peer lending is, and explored diversification and returns, we are going to look at understanding your tax liability when investing in P2P.

Key things to remember*

Most people could end up paying zero tax on their P2P investments, this is because peer-to-peer lending is included in the Personal Savings Allowance.  However, bear in mind that this will depend on your personal tax position, and the guidance we provide below is generic I nature.  Therefore, we strongly suggest that you seek professional advice when basing investment decisions on tax considerations.

Currently, it is £1,000 tax-free interest for basic-rate taxpayers and £500 allowance for higher-rate payers. It’s also important to remember that any losses are deductible when it comes to calculating your tax liability.

Understanding personal allowances

If you are paying the basic rate of tax on your of income, you can earn up to £1000 on P2P investments tax free (coupled with any savings accounts you have). If you’re on the higher rate, your allowance is up to £500 tax free profits.

Put simply, basic-rate payers shouldn’t expect to pay tax on any savings or P2P earnings until their pot size has grown larger than £10,000 to £30,000. If you’re a higher rate taxpayer, interest earned on the first £5,000 to £15,000 of your pot won’t be taxed, unless you earn very high interest rates.

Income tax on P2P lending

If you earn more interest over-and-above your personal allowance, you’ll pay the same rate as your normal income-tax rate:

  • Basic rate: 20%.
  • Higher rate: 40%.
  • Additional rate: 45%.

Therefore if you’re a basic rate taxpayer and you earn £2,000 in interest, £1,000 is tax free. Of the remaining £1,000, £200 (20%) will go to the taxman.

What is deductible?

You only pay taxes on the money you actually receive after losses, therefore you can offset losses at one peer-to-peer lending site with gains made at another one.

Most platforms don’t charge direct lending fees, however you will find that they make other charges called ‘loan servicing fees’ for example, these are tax deductible. For platforms that still charge you ‘direct lending fee’ you might get charged 1% fees, so if you earn 7% interest on your investment, deduct the 1% fees, you still have to calculate your tax based on 7%.

Paying your taxes easily

To make your experience simpler many peer to peer lending sites provide an annual tax statement to make it easy for your to declare any P2P income to the HMRC.

If you’re a basic rate taxpayer, it can even be as simple as printing off the annual tax statement from your P2P site, posting it to the tax office, and asking them to adjust your personal allowance via your tax code.

The new innovative finance ISA

The UK summer budget also had great news for peer-to-peer lending; from April 2016, peer-to-peer returns will be tax-free when investing through an Innovative Finance ISA. 


Taxation on P2P income shouldn’t be a headache and definitely shouldn’t put you off making an investment if you decide that P2P is right for you. Most P2P sites make it very easy for their customers to make their returns quickly, easily and within the legal guidelines.
At Huddle, we aim to provide unbiased and informative content Library to educate you on every aspect of the peer to peer lending market so you can stay informed and easily understand how every element of it works.
For more information, follow our blogs to explore more topics or sign up to our newsletter to get content sent directly to your inbox.

*Please note that all facts contained in this piece were correct at the time of publication in September 2016, you should always check the latest P2P tax guidelines on the HMRC site.



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