Peer to Business Lending
Alternative Finance Sector Report - November 2014
36
PEER TO BUSINESS LENDING
ALTERNATIVE FINANCE SECTOR REPORT
PUBLISHED
November 14
AUTHOR
Luke Jackson
Samantha Goins
0
100
4737%
200
300
400
500
TOTAL ISA
P2P LOANS 10%
OF THE MARKET
P2P LOANS
OUTSTANDING
“We also want to
encourage growth in
the peer-to-peer sector
as part of our plan to
increase competition
in the banking sector
and diversify available
sources of finance for
businesses.”
-
HM Treasury
When P2B becomes available within
ISAs it will dramatically increase the net
returns on offer by making them exempt
from Income Tax – saving 40% for higher-
rate taxpayers. The advantage of tax free
capital gains will apply to P2B investments
where the interest is rolled-up until the
end of the investment term and paid as a
lump sum along with the initial capital.
Based on a 10% gross annual return
available through P2B lending, a 40%
taxpayer would receive 9.75% net after
tax through a loan held within an ISA,
compared to 5.75% otherwise. Holding
P2B loans within an ISA represents a
potential 20% increase in net returns for
normal rate taxpayers and 72% increase
for 40% taxpayers. Note that this doesn’t
take into account any provision for bad
debts or default rates which will have an
impact on returns.
The ability to hold P2P within an ISA has
the potential to dramatically increase the
UK P2P lending market. If P2P was to take
10% of the total ISA market, UK gross P2P
lending would increase by 48x to £44bn
within the next 5-10 years. This would
make P2P lenders a strong competitor for
banks in many sectors as well as providing
much higher returns to ISA savers with
potentially lower volatility than stocks and
shares ISAs.
0.00%
2.00%
1.50%
5.79%
9.71%
4.00%
6.00%
8.00%
10.00%
12.00%
CASH ISA
RATE
P2B NET YIELD
VIA ISA
P2B NET YIELD
POST TAX*
SOURCE:
LIBERUM, ASSETZ CAPITAL,
UK DEPOSITS.ORG
Best Cash ISA Rate Vs P2B Loan Net Of Tax And P2B Loan
Within ISA
SOURCE:
Bank Of England, Zopa, Funding Circle, Ratesetter
Potential Of P2P Lending In ISAS (£BN) (2014)
CASH
STOCK
