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Lender Fees to Be Taxed – No Big Deal
Her Majesty's Revenue & Customs has ruled that individuals lending their money through P2P services must pay tax on their lender fees from 6 April 2015.
P2P lending website Zopa revealed this in an email to its lenders this evening.
Up to this point, lender fees have been tax deductible. If you earned 6% interest and paid a 1% lending fee, you would declare 5% for the year.
(It's a bit more complicated if you suffered bad debts yourself, rather than seeing them soaked up by a bad-debt provision fund. See our guide How Is Peer-to-Peer Lending Taxed? for more.)
It's easy to get around
It's not hard for the P2P lending companies to get around this. They just stop charging lending fees and take their cut of the borrowers' repayments in other ways.
One way is to charge a higher borrower fee and reduce their interest rates, so that borrowers and lenders continue to pay or receive the same as before.
Or they could do what Zopa has announced today. They're scrapping the 1% lender fee and introducing a “loan servicing fee” that is being taken directly from the loan repayments. Again, the borrower pays the same and the lender gets the same.
Most likely, most other P2P lending companies that charge lending fees will follow suit.
No fee does not mean “free” lending! Read more in Neil's eye-opening piece: There's No Such Thing as “No Lender Fee”.
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