The Summer Budget: Encouraging News For P2P Platforms But Investors Must Become More Savvy
9th July 2015
During this week’s Emergency Summer Budget, Chancellor George Osborne announced a series of changes effecting businesses and investors. The measures should be viewed as mainly positive due to them encouraging investment into wealth generating businesses, at the expense of buy to let property. Investors will need to become more savvy due to the clamp down on buy to let mortgage interest relief, and changes to dividend tax treatment. Additionally, the alternative finance sector was given further support through the announcement of a new P2P ISA.Our key points:
Our key points:
Dividend Tax Treatment
The notional 10% tax credit on dividends is being replaced by a £5,000 allowance. This means that anyone receiving dividend income less than £5,000 will be able to receive it tax free.
Dividend income above this threshold will be paid at 7.5% by basic rate tax payers, 32.5% by higher rate taxpayers and 38.1% by additional rate tax payers.
The main takeaway from this is that the new treatment penalises additional rate taxpayers who see the notional tax on their dividend income increased from 30.6% to 38.1%
This means that high net worth individuals, with income of more than £150,000 may choose to divest investments from stocks and shares into more tax efficient alternative asset classes.
Equity crowdfunding could be a substitute vehicle for such investors to place their money. Whilst long-term term they may suffer high tax from dividends, they will receive generous tax breaks from SEIS/EIS qualifying companies.
Buy To Let Mortgage Relief
Landlords will only be able to claim tax relief on mortgage interest payments up to the basic rate of tax, currently 20%.
This is likely to make buy to let investment less attractive, as landlords will no longer be able to claim tax relief on the top level of tax they pay.
We hope that this will instead encourage investment into great British companies, which create jobs and help grow the economy. One way of doing this is through debt opportunities on platforms such as Crowd2Fund, which carry high quality campaigns of companies which have been thoroughly vetted by our team.
Additionally, recent recipients of the new Pension Freedoms (which we previously blogged about), who were planning to originally invest in buy to let property, may now be seeking to invest elsewhere.
Innovative Finance ISA
From 6 April 2016 investors will be able to hold P2P debt investments in an ISA. Investors will be able to invest their full ISA allowance (currently £15,240) tax free into qualifying debt crowdfunding campaigns.
This is likely to aid the growth of the debt crowdfunding market, and should be viewed as an another encouraging sign from the Government, who introduced the allowance of bad debt relief in debt crowfunding campaigns in April 2015.
Additionally, these expected new funds are likely to help fuel the growth of capital-hungry British companies, which hold the key to our economic recovery.
A public consultation has been issued on whether to extend the list of ISA eligible investments to include equity crowdfunding campaigns.
If introduced, alongside P2P debt investments, this would allow investors to build a more diversified portfolio based on their risk appetite.
Past performance and forecasts are not reliable indicators of future results. Your capital invested is not covered for compensation in the event of a loss by the FSCS. Tax treatment will depend on the individual circumstances and may be subject to change. Please see our Risk section before making an investment decision.