Peer to peer lending: When is peer to peer tax relief available?
For a lender to be able to claim relief on a peer to peer (P2P) loan that becomes irrecoverable all of the following conditions must have been met:
- Assuming interest were paid on the loan that becomes irrecoverable, the lender would be the person who is subject to any income tax due on the interest.
This means that relief will only be available for the legal lender. It will not be available for a person who holds the loan through a legal structure or tax transparent entity. The “lender” for these purposes will include a person to whom a loan is assigned. More detail in Who receives P2P tax relief. 2. The loan must be made through a regulated peer to peer platform. The loan must be made through an operator who has permission under Part 4A of the Financial Services and Markets Act 2000 [to operate an electronic system in relation to the lending of money](https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim12020). This condition may also be met if the loan is made through an operator who is based elsewhere in the European Economic Area and has been granted equivalent permissions under the law of that jurisdiction. However this will only be the case where the operator has been granted a permission to undertake the activity, if the law instead states that permission is not needed to operate as a peer to peer lending platform in that jurisdiction then the condition will not be met.
- Any outstanding amount of the principal (capital) of a loan made at any time has, on or after 6 April 2015, become irrecoverable.
More detail in When is a peer to peer loan treated as irrecoverable.
- The loan is defined as a “peer to peer loan” by the legislation
For a loan to be defined as a peer to peer loan for this relief:
- the lender must be subject to UK Income Tax on their income (if any) from the loan
- the loan must be made on commercial terms, and
- the loan cannot be not part of a scheme or arrangement to obtain a tax advantage.
The loan must also meet the definition used to define peer to peer lending as an activity that is regulated by the Financial Conduct Authority.
More detail in <span href=”What is an eligible “peer to peer loan”” rel=”nofollow”>What is an eligible “peer to peer loan”</span>.
What this means for UK individuals
If the lender is an individual subject to UK Income Tax on their income from the loan, and makes loans through a regulated UK platform, then if a loan becomes irrecoverable it should qualify for relief.
What this means for other persons subject to UK income tax
If the lender is subject to UK Income Tax on their income from the loan but is not an individual, then they will have to consider whether the loan falls within the definition in the legislation (more detail in <span href=”What is an eligible “peer to peer loan”” rel=”nofollow”>What is an eligible “peer to peer loan”</span>).
What this means for persons not subject to UK Income tax
If the lender is not subject to UK Income Tax on their income from the loan then the loan will not meet these conditions.
What this means for persons Subject to UK Corporation Tax
Persons subject to corporation tax will not be eligible for this relief, but may be able to claim a deduction for any losses under the Loan Relationships regime (more detail in the Corporate Finance Manual at CFM30000).