How to pay tax on peer to peer lending income?
Taxation of peer to peer lending profit is an issue. Of course, taxation is something to keep in mind whenever investing.
How will peer to peer lending earned money be taxed? And what about P2P cash back bonuses?
It can be easier than expected
One of the most important P2P lending websites in Europe has understood how much concern is building around this topic.
Hundreds of investors are flocking to alternative finance. They submitted an international survey to his own customer/investors. Just brilliant. Thank you Bondora. We publish the answers you got here
Data reported here are obviously just opinions collected doing experience and doing research, I am not a fiscal advisor. These can be anyway a starting point to find out how much taxes you might be paying on your P2P lending profit.
We are sometimes too focused on finding the right P2P tool. That’s fair, but the net profit after taxes is what counts.
So taxation has to be taken into account even if our average yearly interest is stable above 10%. I know most P2P investors exceed this level, so let’s find out.
When we analyze this profits in depth we find out that taxation on secondary market transactions profit might be different from the ordinary interest taxation.
What taxation applies to p2p cash backs on P2P lending?
Can I offset losses against earned interest?
Do I have to report my earnings even if this are left abroad and reinvested?
As you can see the subject is huge, even though in most cases and countries it is very simple to pay tax on social lending gains. We do recommend to seek professional advice if you are not too confident with the matter.
Every peer to peer lending website has an area where users can download their own detailed tax report to submit in their country. This tax report is usually a simple PDF document where crucial numbers are reported. It is normally very easy to read also for the laypersons.
The Tax Report will be created for you immediately and anytime of the year upon request.
Bondora tax report example
Here we have an example of how it looks like the report generation web page of Bondora.
There are several options to choose from but normally you will be asked “from when to when”, which is all that matters.
For Bondora tax report just go to the Reports page, choose the period and click on the PDF icon. The result is immediate. On the Tax Report the most important rows are, of course, “Interest Received” and “Interest Repaid from Loans in Default”. Total interest is the sum of the two values.
If you want to know the earned capital gains from Secondary Market just tick the right box.
Mintos tax report example
And here is the tax report page from Mintos website.
Here is the Fixura social lending tax report page
Taxation on P2P lending in the UK may be very different from the rest of Europe. Many British social lending platforms allow resident investors tax deductions under a system called IFISA. It can be very convenient with a 20k £ yearly allowance.
In some European countries, P2P lending interest taxation can be a fixed percentage. In many others, interest income can be taxed like capital gains.
Final thoughts on P2P tax
Most European citizens must declare the earned interest even if the profits are still virtual and the active strategy is to reinvest all the returns.
If for any reason we haven’t earned any profit in a calendar year, then we have no obligation of declaration, we only pay on actual interest payments.
Most of the times when declaring our income (as a private citizens) we are not allowed to offset any losses against earned interest and income tax is payable on total interest received.
What is your experience? Have you already paid this taxes in your nation? How was it?
Do you have any questions or suggestions?
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This blog is for information purposes only and should not be considered as investment advice or an invitation to trade.
NOTE: The indications contained in this analysis are to be considered mere information tools and do not intend to constitute in any way financial advice, solicitation to the public savings, suggest or promote any form of investment.