P2P lending interest to be included in £1000 tax free

badger09

I don't think there's a thread on this yet, but from the Zopa forum:

http://talk.zopa.com/topic/9376-p2p-isa/
see post 13


http://www.altfi.com/news/842

How this fits with P2P coming under the ISA umbrella... :question:

masonic

badger09 wrote: »

How this fits with P2P coming under the ISA umbrella... :question:

There was some speculation that P2P might be ISAable later this year, so I'd say that's a lot less likely if in April 2016 most will not need the ISA wrapper.

MARTYM8`

Why wouldn't they - they are savings interest like any other savings. The only difference is they are not FSCS protected.

The new rules certainly make cash isas less attractive - if you can get £1k interest tax free anyway. Most basic rate taxpayers would need £100k in a typical cash isa to earn £1k in interest assuming an average 1% rate.

If I wasn't a high rate taxpayer I probably would not even bother wish cash ISAs anymore.

masonic

MARTYM8` wrote: »

Why wouldn't they - they are savings interest like any other savings. The only difference is they are not FSCS protected.

They are not savings accounts and the lack of FSCS protection is because of that. Some of them are dressed up to look more like savings to appeal to consumers, but these platforms allow you to purchase debt, in much the same way as you could do so by buying a corporate bond fund, so I wouldn't have assumed they'd be included until it had been confirmed.

It raises the question as to whether bond funds will now be able to pay interest gross outside of a S&S ISA/SIPP with no tax payable for those within their interest limits.

PeacefulWaters

MARTYM8` wrote: »

Why wouldn't they - they are savings interest like any other savings.

That is a bit of a leap.

The new rules certainly make cash isas less attractive - if you can get £1k interest tax free anyway. Most basic rate taxpayers would need £100k in a typical cash isa to earn £1k in interest assuming an average 1% rate.

If I wasn't a high rate taxpayer I probably would not even bother wish cash ISAs anymore.

Cash ISAs still have their place. Not least to protect against future tax liabilities as and when interest rates rise.

masonic

PeacefulWaters wrote: »

Cash ISAs still have their place. Not least to protect against future tax liabilities as and when interest rates rise.

The thought has crossed my mind that the tax free interest allowance might be the first in a series of steps that ultimately leads to the demise of the cash ISA.

PeacefulWaters

masonic wrote: »

The thought has crossed my mind that the tax free interest allowance might be the first in a series of steps that ultimately leads to the demise of the cash ISA.

There's certainly a case for it.

Mr_Prudent

I think cash ISA’s will still be relevant since we’re only talking about the first £1000 being tax free. That means if you invest say 20K in p2p and you were to get 5% then that’s your tax free limit gone, so you then need to look at other forms of tax free investment. Also don’t forget that in the ISA wrapper your interest is “invisible” to the tax man and does not count as part of your income either.

TheTracker

I didn't think it was even up for question that it was inclusive. Each year I declare my p2p earnings as interest earned, not salary or dividend or capital gain.

masonic

TheTracker wrote: »

I didn't think it was even up for question that it was inclusive. Each year I declare my p2p earnings as interest earned, not salary or dividend or capital gain.

In that case I guess interest from bond fund distributions would go in this section also?

bowlhead99

masonic wrote: »

They are not savings accounts and the lack of FSCS protection is because of that. Some of them are dressed up to look more like savings to appeal to consumers, but these platforms allow you to purchase debt, in much the same way as you could do so by buying a corporate bond fund, so I wouldn't have assumed they'd be included until it had been confirmed.

It raises the question as to whether bond funds will now be able to pay interest gross outside of a S&S ISA/SIPP with no tax payable for those within their interest limits.

I had also assumed that p2p wouldn't be included too. All the announcements on budget day were about 'not paying interest on your savings', and not that you would be able to now avoid tax on investment income.

Perhaps that marketing spin from the treasury and government officials was because the government want to be able to market this initiative as only a giveaway to little old ladies living off their savings and low to middle earners struggling to save to get on the housing ladder etc. If they had said savings and investment interest they would be making it obvious that 'fat cats' would be benefitting too (albeit only on the first £1k) and it is more of a giveaway.

To me, savings is cash deposits and as we all know, the FSCS and equivalent European financial services regulations make distinctions between depositary accounts and other investment accounts. P2P stuff at Zopa, Funding Circle etc and the stuff covered by Altfi is very definitely not savings deposits. Treasury published a factsheet here: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/414026/Savings_factographic_final.pdf specifically talking about the new personal allowance for "interest that you earn on your savings".

I doubt that the environment for investment funds making interest distributions with withholding at source will change. There has been no indication that it would. The factsheet that I linked specifically referred to 'banks and building societies' stopping taking 20% at source - and didn'tt refer at all to bonds and bond funds. With bond funds, the underlying companies whose bonds are paying out are all taking tax breaks for the interest expense paid and so it is important that the investors receiving the income pay their corresponding taxes unless they're tax exempts such as pension funds. If the interest tax regime changes significantly -and the proposed changes are only really worth £200 a year to anyone anyway - it could be interesting times.

P2P is currently outside the withholding regime anyway, as is making a small personal loan to your brother or your wife or your father or your workmate. So perhaps easy for them to say that stuff all gets covered by the 'savings' regime along with bank accounts which are losing the auto withholding tax at source status, while other sorts of investments which have WHT will keep it.

But given nobody is talking about bond funds getting a tax break and all the government-to-consumer advice is talking about 'savings interest', and they have not published any government-to-consumer statement that mentions 'investment interest' or 'investment income', I can't help wondering if the p2p lenders got a soundbite from a mistaken Treasury official which will lead to an embarrassing backpedal later? If not, it might mean that this deal has been deliberately pre-agreed to be given to p2p lenders to avoid the government having to give a concession on putting p2p loans into a S&S ISA on the same sort of timescale.