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The Budget: P2P ISAs And Three Other Impacts
Today's Budget does “just under half” of the £37 billion of cuts that Chancellor of the Exchequer George Osborne is attempting in order to clear the deficit.
This tax-raising Budget puts pressure on both individuals and businesses: it's more money going to pay old government debts from over spending than helping us take care of our own affairs.
But let's start with the good news:
P2P lending ISAs from April 2016
We will be able to lend tax free from April 2016 through a new ISA. Lower taxes means that the overall returns will be higher. This also lowers the risks, since higher returns can compensate for any loans we suffer that go bad.
Unfortunately, the name of the new ISA – “Innovative Finance ISA” – is not at all clear to investors!
Note that – as previously announced – we're getting a tax break of up to £1,000 on interest earned outside an ISA from April 2016 too. That means we could potentially lend over £10,000 outside an ISA and not pay taxes too. Read more in How Is Peer-to-Peer Lending Taxed?
Buy-to-let tax breaks reduced
Landlords will be allowed to claim a maximum of 20% relief on their mortgage interest payments. Previously they could get up to 45% relief, since it was based on the landlords' tax rates.
This change will be phased in over a couple of years.
It's good news for prospective home owners: landlords' tax breaks will be reduced, which helps to level the playing field somewhat between investors and new owners.
However, it's not good news for landlords or for individuals lending to them through Landbay*.
Landbay is currently the only peer-to-peer lending website allowing you to lend your money in mortgages to residential buy-to-let landlords. Higher costs for landlords will impact their ability to meet their obligations to you and other lenders.
Read more about Landbay in Get Started With The Safest Peer-to-Peer Lending Websites and Landbay Survives Severe Property Crash Stress Test.
Cuts to benefits
Since most personal loans P2P lending is to prime borrowers, the significant cuts to a variety of benefits, as well as the deep cuts to the total benefits one household can receive, will have less of an impact on most of them. But it will undoubtedly put a strain on some P2P borrowers.
Some of the cuts include:
- £26,000 benefits cap reduced to £20,000 for most of the country.
- Local authority tenants earning £30,000 or more (£40,000 in London) will pay higher rents.
- Most working-age benefits frozen for four years.
Corporation tax down, but higher minimum wage
A corporation tax rate reduced from 20% to 18% will be welcomed by businesses, as well as us individuals who lend to businesses through P2P, since it lowers our risks.
However, a higher minimum wage, which the Chancellor is calling a National Living Wage, will at least partly offset the lower tax rate.
The minimum will rise from £6.50 to £7.20, and then again to £9 by 2020.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from Landbay, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.