Investors are braced for a tax rise next year to help fund social care, but could peer-to-peer lending help make up the shortfall?
The government last week announced 1.25 percentage point increase in national insurance to fund health and social care services.
It will come in from April 2022 and the government’s own figures show an employee on £20,000 would pay an extra £130 in national insurance through the levy while someone on £50,000 would pay £505.
The average UK salary is around £30,000.
The national insurance payments on a £30,000 salary would currently be £,2451 but will be £256 extra from April 2022 at £2,767.
Earning that £256 back through financial products can be tricky, especially with savings rates at record lows.
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The highest rate on an easy access account is currently 0.65 per cent from Tandem Bank, according to comparison website Savings Champion.
A £1,000 deposit would earn you £6.50 in the first year and you would need to have around £40,000 in the account to earn more than £256 interest.
That is a lot to put into a cash savings account, especially when the return is below the current inflation rate of two per cent.
Savers may also struggle with the best fixed savings rates.
Atom Bank currently offers a rate of 1.5 per cent for one year.
You would need a deposit of £17,000 to earn £130.
Investors could take a bit more risk on the stock market but returns can be volatile over one year.
Alternatively, many P2P lenders offer inflation-beating returns, albeit without Financial Services Compensation Scheme protection and the risk of loan defaults.
Here is how much you would need to invest with P2P lenders to earn £256 and cover the NI care levy.
Using data from P2P analyst 4th Way, CapitalStackers currently offers some of the highest rates on the market at 12.15 per cent.
A £2,000 investment could earn £257 after a year.
LandlordInvest offers rates of 10.89 per cent, according to 4th Way, which would require a £2,025 investment to earn £256.
A £3,017 investment with CrowdProperty, which offers returns of 7.67 per cent, would earn £256.
Similarly, platforms such as Assetz Capital, Proplend and Kuflink all offer returns of more than six per cent, which would require a £4,010 investment to get £256 back.
Each P2P lender has its own risks so it is important to do your research and due diligence before investing but the data shows that this could be an option worth considering so that you can fund social care and also get your money back.