The short version: Peer to peer (P2P) lending is where you lend money directly to individuals or businesses through online platforms, cutting out the bank. You earn interest on the loans, and yes, it’s taxable.
How is it taxed?
Interest from P2P lending counts as savings income. Basic rate taxpayers get a Personal Savings Allowance before tax kicks in. Higher rate taxpayers have a smaller allowance. Additional rate taxpayers have none.
What if borrowers default?
If someone you lent to doesn’t pay back, you might be able to offset the loss against your P2P interest income. The rules vary depending on the platform and the type of loan.
What about ISAs?
Some platforms offer Innovative Finance ISAs. Interest earned through these is completely tax free, just like other ISAs. Worth considering if you’re a regular P2P lender.
Is it risky?
Yes. P2P lending isn’t covered by the Financial Services Compensation Scheme. If the borrower or the platform fails, you could lose money.
Earning interest from P2P lending? Make sure you’re reporting it correctly on your tax return.
