Budget Roundup for the P2P Sector
Brian Bartaby, Founder and CEO, of Proplend said “I don’t think we could have really wished for a better Budget. The Chancellor has shown that he is still very supportive of Alternative Finance and it’s up to us, the platforms, to support the Lenders who invest through us. We look forward to working with the new Innovative Finance ISA.”
From April 2016, the new Innovative Finance Isa (IFISA) will include peer-to-peer loans, meaning new investors will be able to lend over £15,000 tax free (the Isa limit is due to rise in line with inflation) and existing ISA investors may be able to transfer funds as well.
The new IFISA is in addition to the new personal savings allowance which had already been announced, this allows individuals to receive up to £1,000 in savings or loan interest without being liable for income tax. It means peer-to-peer lending will have a double tax efficiency from the start of the new tax year in 2016. In a survey in late 2014, 85% of the individual lenders we spoke with said they would consider lending through an ISA if and when it became available. Each year approximately £40 billion is placed into cash ISA’s, if only 5% of that is diverted into IFISA’s this would nearly double the UK’s P2P lending volume to date.
The advantage of an IFISA means lenders will have the ability to build up a substantial holding over the course of several years or even decades as interest and capital will remain tax-free as reinvesting repayments will compound over the years.
A constant competitor for P2P lender money is the cash or deposit used for the purchase of a Buy to Let property, a long term favorite of the UK investor. These Buy to Let properties rarely appreciate much in capital value, unless in London, they are being primarily purchased as an investment to produce regular monthly income. Unexpectedly, they did not fare too well in the budget with the Chancellor reducing the ability of the landlord to offset as much rental income against the interest due from the BTL mortgage as they have been currently used to. Bottom line is this reduces the yield or income the property will generate, possibly taking some landlords into zero return positions.
Perhaps P2P will gain an additional boost from refugee would be BTL landlords.
Finally, the new Challenger Banks were venting their anger at the Chancellor after he included them within the Bank Tax, a 8% tax surcharge on British Banks profits from January. Shares in the several of the Challenger banks fell as much as 15% following the announcement. It’s a shame as these are small, domestic, generally well run and profitable but they are being treated the same as the large historic High Street banks they have been set up to disrupt.