What the Budget 2021 could mean for P2P lending
Chancellor Rishi Sunak will unveil his long-awaited Budget tomorrow, but what could it mean for the peer-to-peer lending sector?
Sunak (pictured) will be under pressure to show how he plans to balance the books amid record government spending during the coronavirus crisis.
Tax rises and further financial support are expected.
Here is how the red book could hit the P2P lending sector.
Emergency lending successor schemes
P2P lenders such as Funding Circle and Assetz Capital are among lenders who have helped support businesses through the coronavirus business interruption loans scheme (CBILS).
Both CBILS and the bounce back loans scheme are due to end this March and Sunak is expected to outline a replacement.
P2P lenders will be hoping that they are included from the start this time round amid concerns about how long it initially took to get fintech firms accredited for CBILS lending.
Capital gains tax
Everyone has a yearly allowance that lets them sell assets such as investments with the first £12,300 free of capital gains tax.
If you made a profit of more than £12,300 when selling your P2P loans on a secondary market you may have a tax charge to pay.
Sunak has previously asked the Office for Tax Simplification (OTS) to review the current capital gains tax system.
The OTS released its review in November 2020 and suggested lowering the threshold and that the rate could be doubled from the current 10 per cent for basic rate taxpayers to 20 per cent.
A profit of £12,300 is a lot to make on a P2P loan, but a lower threshold, such as in single figures, could catch more P2P investors selling their loans.
ISA allowance
The ISA allowance is currently £20,000.
Savers and investors can put £20,000 in a cash, stocks and shares or Innovative Finance ISA (IFISA) and earn any interest tax-free.
Lowering the allowance would mean any money outside the tax wrapper would be liable for an income tax charge.
There is no suggestion that Sunak will do this but he is rumoured to be planning to freeze the pension lifetime allowance on payouts from retirement pots so allowances are clearly on his agenda.
Income tax
There are rumours that while Sunak won’t increase income tax rates, he could freeze the tax thresholds.
The amount someone can earn before paying income tax is currently £12,500.
It is due to rise with inflation each year and hit £13,250 by the 2024 election.
Read more: P2P lending ‘key part of economic recovery’
Similarly, the £50,000 threshold, above which workers pay 40 per cent income tax, is due to rise to around £53,000 by the end of this Parliament.
That puts more pressure on everyone, including P2P investors.
As people earn more, they could be pushed into tax brackets they previously may have avoided.
This makes it all the more important to use products such as IFISAs to reduce tax earned on investments.
Corporation tax
P2P lending platforms could see their tax bills increase if Sunak goes ahead with a rumoured corporation tax rise.
He is believed to be considering increasing corporation tax to as high as 24 per cent from its current 19 per cent.
Stamp duty
Sunak introduced a stamp duty holiday on sales up to £500,000 last July and P2P property lenders have said they saw a boost in activity as a result.
Many are now hoping for a tiered approach as it is due to end and Sunak is believed to be planning a three-month extension.
Whatever he announces, P2P lenders will be hoping that investor confidence can be maintained and boosted as the sector enters the post-pandemic world.