What are the tax consequences of lending as an individual?

Returns from lending at Funding Circle are paid without any tax being deducted. If you are lending as an individual you should declare any interest and gains to HM Revenue & Customs (HMRC) on a self-assessment tax return or inform your local tax office.

Funding Circle make available to all investors Transaction Statements and an Annual Tax Statement, splitting out the relevant amounts for your tax return.  Each is available for download in the My Statements section of My Account.

Please note, we are unable to provide any further information about tax other than what is provided in our tax section. The wording below is for indicative purposes only, and does not constitute tax advice. If you are in any doubt about your tax position you should speak to your accountant or make an appointment to speak to an adviser at an HMRC enquiry centre.  This information is only relevant to UK tax resident individuals holding loans directly as legal and beneficial owner.

Taxation of interest earnings

• Your returns are taxable as income and you will need to declare these to HMRC.  For Tax Returns from and including:
• the 2015/16 tax year, you will be able to deduct eligible bad debt; and
• the 2016/17 tax year, you will have the benefit of a personal savings allowance.
• Unless an exemption or allowance applies, interest payable to investors on money loaned is charged to income tax in the tax year of receipt. For example, interest received on 31 December 2015 is received in and taxable for the tax year 2015/16.
• If you already complete a Tax Return you will need to ensure the appropriate interest is shown on the return.
• If you have not previously completed Tax Returns you will be required to do so if you have a tax liability and should contact your local Tax Office, who will issue the appropriate Tax Return for your completion or adjust your Pay As You Earn (PAYE) tax code accordingly.
• For further details, please see HMRC guidance here .
• In a small number of cases, where investors are lending to a large number of borrowers they could be deemed to be carrying on a trade of money lending. See HMRC guidance by clicking here . If you are in any doubt about whether you are carrying on a trade of money lending, you should contact your accountant or HMRC directly.
• The Annual Tax Statement shows interest payments made to you.

Ability to Offset Bad Debt

• From 6 April 2016, a new bad debt relief is available for individuals lending through P2P platforms in respect of P2P loans made by you which have become irrecoverable.
• If relief has been claimed and there are later recoveries on the loan treated as irrecoverable, such recoveries will be taxed as additional interest received by you.
• If you have suffered bad debts on loans between 6 April 2015 and 5 April 2016, you will be able to claim for relief on losses arising on loans by setting them against interest received in the same tax year from any other eligible loan.
• From 6 April 2016, any irrecoverable loans will be set against the interest received during the tax year from other loans made using the same P2P platform.
• If all bad debt relief has not been used against loans made on the same platform, it can be used against P2P loans on a different platform – this will need to be claimed in your tax return.
• Relief can be carried forward for a maximum of 4 years.
• For loans that become irrecoverable on or after 6 April 2016, a loan that would have been eligible for capital gains relief as a capital loss under TCGA 1992 will no longer be eligible for that relief.  A loan that becomes irrecoverable between 6 April 2015 and 5 April 2016 that would have been eligible for relief as a capital loss under TCGA 1992 may still be eligible for capital gains relief, but only if no claim is made for P2P income tax relief for the loss on the loan.
• For more information and examples of how the relief should be claimed, see https://www.gov.uk/government/publications/income-tax-relief-for-ir....
• A further explanation of the relief and explanation of how to claim it can be found here.

Taxation on sales of loan parts for a premium or discount

• Some investors may choose to redeem their loan parts before the maturity date by transferring their loan parts to other investors. Any such transfers by the original lender are unlikely to result in capital gains or losses. Any such transfers by lenders who have acquired their loans on the secondary market may result in capital gains or losses.  We recommend that you speak to your accountants or tax advisors for detailed advice on any such transfers.

Personal Savings Allowance

• From 6 April 2016, the first £1,000 of interest for basic rate taxpayers and the first £500 of interest for higher rate taxpayers will be free of income tax.  This applies to interest earned through Funding Circle as well as through other traditional savings accounts.
• The personal savings allowance is not available to additional rate taxpayers (i.e. those with a taxable income in excess of £150,000 in a tax year).
• If you already complete a Tax Return you will pay any tax on interest earnings through that system.
• For further details, please see HMRC guidance here.

Taxation of cashback

• In certain circumstances Funding Circle offers cashback to investors. The cashback is considered an inducement to enter into a transaction and is received as a direct consequence of having made the loan.
• Cashback promotions are not normally treated as taxable income.