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Money earned through peer-to-peer lending is usually classed as income, so you could be charged income tax on the earnings.
Most won't pay any tax at all because of the personal savings allowance and the availability of Innovative Finance ISA (IFISA) products.
JustUs lenders are responsible for paying their own tax.
Tax Rules relating to Peer-to-peer investments:
An Innovative Finance ISA (IFISA) allows P2P loans to be held in an individual savings account (ISA). This means the interest received from P2P loans would be tax free and you avoid being taxed on any capital gains (generally applicable for those with significant investments).
An IFISA allows you to lend up to an overall limit of £20,000 per tax year. The £20,000 annual contribution allowance is shared between all types of ISA: IFISAs, cash ISAs, lifetime ISAs, and stocks and shares ISAs.
There is no requirement to declare ISA interest, income or capital gains to HM Revenue & Customs on any gains within an IFISA product.
Basic-rate taxpayersBasic-rate taxpayers are allowed to earn £1,000 of combined interest from all of their savings accounts (including P2P investments) tax free.
As a basic-rate payer, you shouldn't expect to pay tax on gains from your savings and P2P investments until your pot size has grown larger than £10,000 to £30,000. This figure will be dependent on the interest rates you are earning from the investments.
Currently normal basic-rate taxation is at 20%
Higher-rate taxpayersHigh-rate taxpayers are allowed to earn £500 of combined interest from all of their savings accounts (including P2P investments) tax free.
As a high-rate payer, you shouldn't expect to pay tax on gains from your savings and P2P investments until your pot size has grown larger than £5,000 to £15,000. As with basic-rate taxpayers this figure will be dependent on the interest rates you are earning from the investments.
Currently normal high-rate taxation is at 40%
Additional-rate taxpayersThere is no personal allowance for additional-rate taxpayers so tax would be payable on all gains from eligible savings.
Currently normal additional-rate taxation is at 45%
Non taxpayersAs long as your income remains under the basic-rate threshold, no tax would be payable on P2P investments.
You would only pay tax on income received after losses have been considered. Losses can be offset against gains made between multiple P2P lenders but cannot be offset against other savings products. The loss relief can be carried for 4 years.
When you purchase a loan on the secondary market, the interest received prior to your ownership will have been paid to the previous lender and therefore is part of their tax liability. The interest earned from the investment following your purchase forms part of your liability.
When you complete a tax return, you will include any taxable peer-to-peer lending interest in the "Interest and dividends from UK banks, building societies etc" section.
If you do not normally complete a tax return, you could write directly to HMRC including a copy of your annual tax statement and request that they adjust your tax code to reflect the income earned from your P2P investments.