Peer-to-peer (P2P) loans are increasingly becoming accepted as an investable asset class for pension plans. Although P2P loans are higher risk than cash deposits at banks or building societies, and are not protected by the terms of the Financial Services Compensation Scheme (FSCS), carefully vetted loans have proved very attractive to an increasing number of lenders.
Is P2P the way forward for pension planning? Take look below, and decide for yourselves.
The key benefit to wrapping your loans up in a pension is that you won’t pay any taxes at all on your interest and profits. Whereas you might do so outside of a tax-wrapper like a pension.
Not only do we pay no taxes on lending profits, but the amount we put into a pension also, for most of us, reduces our income tax bills for that year.
You will still need to pay delayed income tax when you start paying yourself an income from your pension in your older age. However, you can generally expect this to work out cheaper, due to your income in retirement normally being a lot lower and therefore your tax rate is lower.
In addition, when you reach the specified age for your policy (usually around 55) you can usually take 25% of your pot tax free. This means that you will effectively never be taxed on a portion of the income you earn.
It’s very rare to be charged capital gains tax on your peer-to-peer lending profits, but one thing is for sure: it’ll never happen to you in a pension.
Finally, you’re saved from shipping your tax statement to HM Revenue & Customs. You don’t have to declare any interest or gains you make through your pension.
Our friends at P2P Finance News recently reported the commendable efforts of the Tax-Incentivised Savings Association (TISA) to have P2P loans brought into the mainstream as a pension asset class. Here’s how we looked at TISA’s efforts.
As we write this article our current loan offering – eligible to be held in an Innovative Finance ISA – stands as follows: The A-rated GBP 300,000 telephony-company loan of 60 months duration with an indicative interest rate of 8 per cent is 67 per cent subscribed. More loan offerings will be on site soon.
Money&Co. brings individuals looking to get good return on capital with carefully vetted small businesses seeking funds to grow. In addition to new loan offerings, our secondary loan market, offering existing loans for sale by lenders, is available to registered Money&Co. users.
All loans can be held, tax-free, in an Innovative Finance Individual Savings Account, or Innovative Finance ISA.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment.We write regularly about these three key factors. Here’s an earlier article on security, access and yield.
If you haven’t made a loan via Money&Co. before, please read the risk warnings and the FAQ section. You may also wish to consult a financial adviser before making an investment. Capital is at risk, once loaned.