The 2015 budget didn't contain any firm commitments on the ISA front there was the confirmation that lenders will be able to offset their P2P losses from April 2016.
Excepts from the Budget 2015 document:
2.83 Extending ISA eligibility – The list of qualifying investments for ISAs will be extended to include listed bonds issued by a co-operative and community benefit society and small and medium sized enterprise (SME) securities (not just equities) admitted to trading on a recognised stock exchange from summer 2015. The government will explore further extending the list to include debt (as announced at Autumn Statement 2014) and equity securities offered via crowdfunding platforms and will consult in summer 2015 alongside a response to the consultation on how to include peer-to-peer loans.
2.89 Bad debt relief on investments made through the Peer-to-Peer (P2P) lending industry – As previously announced at Autumn Statement 2014, the government will introduce a new relief to allow individuals lending through P2P to offset any losses from loans which go bad against other P2P income. It will be effective from April 2016 and through self assessment will allow individuals to make a claim for relief on losses incurred from April 2015.
We certainly welcome the ability to offset bad debts, which the treasury forecasts will cost £10million of lost revenue in the 2016 tax year. This allows lenders to compete more fairly with banks and financial organisations. We hope that P2P can be included in an ISA in a new group seprate of saving and investment.
Samir Desai, CEO and co-founder of Funding Circle, the leading marketplace for business loans said:
It's fantastic that the 37,000 people lending to small businesses through Funding Circle will be able to offset their losses from April. This change in the tax system will make lending much fairer for individual investors, putting them in an equal position to larger lenders such as banks, and boosting the average investor return by up to 25% per year overnight. We also look forward to further discussion around a third 'Lending ISA' over the coming months.
Peer-to-peer lending turns 10 today, which can only mean that today is Zopa's 10th birthday. Many happy returns (excuse the pun)!
We should also remember that peer-to-peer lending originated here in the United Kingdon with the launch of Zopa - "The first lending and borrowing exchange" back in 2005.
Here are some interesting statistics for Zopa:
- Over £750m lent to date
- £266m lent in 2014 alone
- £334m in outstanding loans
- £46m in interest returned to lenders
- 58,000 lenders
- 107,000 borrowers
- 0.58% historic default rate 2005-2015
- Average lent £6,800 per lender
- Average loan size £7,250
- Largest lender – £2.3m lent
For years Zopa were regarded as the "largest" peer-to-peer lender in the UK. This should not be surprising as they were the first and had been been running for several years before any serious competition emerged. However RateSetter now state the following on their home page:
RateSetters know size isn't everything, but being the UK's largest P2P platform helps
But how true is this statement? After compiling the annual statistics for the peer-to-peer sector we can try to answer this question. We have ranked the peer-to-peer companies in the UK by various criteria.
Ranking by value loans arranged over all time:
- Funding Circle
Ranking by value of loans arranged in 2014 :
- Funding Circle
Ranking by value of outstanding loans:
- Funding Circle
Ranking by ivalue of outstanding loan increase in 2014:
- Funding Circle
- Wellesley & Co
It is clear that RateSetter arranged the highest value of loans in 2014, but their loan book did not increase as much as Funding Circle. This is perhaps affected by RateSetter's monthly market, as money will be go through more borrowers over the same time period.
The metric we prefer is the value of outstanding loans, where Zopa as still (just) ahead of Funding Circle, but with the growth of Funding Circle, RateSetter and Wellesley & Co, Zopa have some serious competition in 2015.
We reported back in May 2014 that Wonga, one of the most well known brands within the financial services sector, had launched Invest and Borrow, a new peer-to-peer payday provider. Invest and Borrow charged borrowers a representative 75% ARP, but payed lenders a smaller 7.35% AER. If a borrower were to default, lenders are repaid the outstanding capital.
The Invest and Borrow website now has the following message:
We have decided to close down Invest and Borrow.
This means we have stopped making any new loans or taking new investments.
For borrowers there is the following statement:
We are cancelling all open loan agreements, and there is no obligation to make any further payments on your loan. We have emailed you to confirm this.
We have contacted Invest and Borrow to clarify the reasons for the closure:
As you already know, we have made the decision to close down Invest and Borrow. This was a business decision, no other specific reasons behind it.
The government has announced some significant changes to peer-to-peer lending in the Autumn Statement. This was contained within the small print of the Autumn Statement document:
This Autumn Statement announces support for Peer to Peer (P2P) and crowdfunding platforms through a package of measures to remove barriers to their growth from regulation and tax rules. These include a new bad debt relief for lending through P2P platforms; a consultation on whether to extend ISA eligibility to lenders using crowdfunded, debt-based securities and an intention to review financial regulation which currently stands in the way of institutional lending through P2P platforms.
The changes have been broken down into three areas. The two that directly affect lenders will be the bad debt relief, which mean lenders will pay tax after bad debt not before, and the withholding of tax on income.
2.183 Removing regulatory barriers for peer-to-peer (P2P) lending – The government announces its intention to review financial regulation which currently stands in the way of institutional lending through P2P platforms.
2.184 Bad debt relief on investments made through the peer-to-peer lending industry – The government will introduce a new relief to allow individuals lending through P2P platforms to offset any losses from loans which go bad against other P2P income. It will be effective from April 2016 and, through Self Assessment, will allow individuals to make a claim for relief on losses incurred from April 2015. (19)
2.185 Withholding regime applied across peer-to-peer lending platforms – The government will consult on the introduction of a withholding regime for Income Tax to apply across all P2P lending platforms from April 2017. This will help many individuals to resolve their tax liability without them having to file for Self Assessment. (53)
There have already been some reactions to the announcement within the peer-to-peer sector. Ian Gurney, founder of P2P money stated:
This is good news for the peer-to-peer sector as it allows lenders to complete fairly with other financial institutions who pay tax after bad debt. It also means that tax-payers are spared having to fill in a tax return solely for declaring their untaxed income from peer-to-peer lending.
James Meekings, co-founder of Funding Circle, also responded:
“This change in the tax system will make lending to small businesses via our marketplace much fairer for individual investors, putting them in an equal position to larger lenders such as banks. It’s something we have campaigned for since we launched four years ago, so we’re delighted with today’s news. More than 35,000 people currently lend through Funding Circle and the average investor could earn up to 25% more overnight per year as a result of this change. This could potentially be significantly higher depending on an individual's investment strategy. It will have a hugely positive impact on the peer-to-peer lending industry and is a win-win-win for investors, borrowers and the economy at large."
Giles Andews, CEO and co-founder of Zopa, stated:
“It’s great to see the Chancellor tackling an out-dated tax law that disadvantages alternative financial models like peer-to-peer lending (P2P). Overturning this tax law means thousands of consumers will keep more of their returns from lending as they will now be able to offset any losses against their P2P interest when calculating tax due on that interest. Zopa and the P2PFA have campaigned hard on this issue and we very much welcome the change. This is a progressive reform from the Treasury that reflects the growing importance of the UK’s alternative financial services sector.”