The new tax year brings a positive change for peer-to-peer investors with the introduction of tax relief on defaults.
From April 6th 2016 tax will be charged only on the interest earned after bad debts rather than before.
How does it work today?
Currently the Zopa Safeguard fund allows our lenders to earn a return that is net of expected bad debt, which shields them from any tax liability on losses. This has made Safeguard very popular with many lenders, particularly those new to peer to peer lending.
However, feedback from existing and prospective lenders tells us that for those wanting to take more risk for a higher return, Safeguard and the current tax rules are barriers to lending with Zopa.
How will the changes impact me?
The change will not impact existing loans with Zopa and we will continue to offer Safeguard cover for new loans, as we know it’s an important feature for some of our lenders. However the new tax rule allows Zopa to explore launching additional products without Safeguard.
Institutions have long been able to offset bad debt against interest income, so we see this as a key milestone in establishing a level playing field for all types of lenders. We’ll be making further announcements about the evolution of the Zopa product over the coming weeks.