{"id":223,"date":"2020-12-14T09:55:31","date_gmt":"2020-12-14T07:55:31","guid":{"rendered":"https:\/\/swaper.com\/blog\/?p=223"},"modified":"2022-03-15T10:27:45","modified_gmt":"2022-03-15T08:27:45","slug":"p2p-lending-taxes","status":"publish","type":"post","link":"https:\/\/swaper.com\/blog\/en\/p2p-lending-taxes\/","title":{"rendered":"A Short Guide to Peer to Peer Lending and Taxes"},"content":{"rendered":"

One of the most common questions you\u2019ll have when you first get started with P2P investing is:<\/p>\n

what taxes do I need to pay and how do I pay them?<\/p>\n

Sadly, like most types of investing, managing and paying taxes is no walk in the park: regulations keep changin<\/a>g, allowances vary depending on your marital status and the payment process is unique to every country.<\/p>\n

That\u2019s why it\u2019s very difficult to offer specific advice on paying taxes when it comes to P2P investing<\/a>.<\/p>\n

The best we can do is give you a bit of an overview and point you in the right direction – and that\u2019s what we\u2019ll try to do in this post.<\/p>\n

How does the tax system vary from country to country?<\/h2>\n

Every country has a unique tax system with different allowances, restrictions and tax declaration systems. We\u2019re not going to cover every European country\u2019s tax system, but we can give a brief overview.<\/p>\n

In Europe there are generally two different ways to tax P2P earnings: based on your level of income<\/strong>, and based on your capital gains<\/strong>. Some countries might do both, and some might tax you at different rates depending on how you make a return on your investments<\/a> (we told you it\u2019s complicated).<\/p>\n

The UK, Denmark and Austria tax P2P earnings on an income tax level. However, Germany, Spain and Italy tax your P2P earnings on a capital level – so, the earnings are taxed as capital gains tax. It\u2019s important to note that you will pay taxes depending on the country you reside in. Wherever your tax residence is – that\u2019s where you will pay taxes on P2P gains. So if you have a company in Estonia or Malta but live in Germany, you will need to pay your taxes in Germany.<\/p>\n

As we mentioned above, some countries tax your profit differently than the interest you make.<\/p>\n

So if you sell your loans on the secondary market<\/a> (capital gains tax), you will pay a different tax than the one you earn on your interest (wealth tax). Some countries also implement some interesting tax breaks. The UK offers an Innovative Finance ISA, which is a tax-advantaged account specifically for P2P earnings.<\/p>\n

In Estonia, you can invest through a company<\/a> and only pay taxes when you pay dividends<\/a>, and in Portugal, you pay a 0% tax rate on the first 10 years you live there as a foreign resident. These are all interesting tax optimisation strategies that could work for you – although we recommend consulting an expert before packing your bags and booking the next ticket to Porto.<\/p>\n

At Swaper, we offer investments to residents of most of the EEA countries.<\/p>\n

How much tax would I need to pay?<\/h2>\n

There are two main ways to tax P2P earnings, but you\u2019ll find that most European countries tax on interest earned (wealth tax). This means that most European citizens need to declare their P2P investment earnings even if it\u2019s being reinvested and is not withdrawn<\/a>. These tax rates vary from country to country: France, Sweden and Finland charge the highest in taxes with an over 30% tax rate, whereas most of the Eastern European countries like Poland and Romania charge less than 20%.<\/p>\n

If you\u2019re investing as a company, you will pay a lower tax rate. In Germany, for example, the personal rate is 25% for individual investors and goes down to 15% for companies. In the UK, you get a \u00a31,000 personal allowance before getting taxed. If you do earn more than that, you pay according to your tax bracket.<\/p>\n

So, 20% if it\u2019s the basic rate, 40% for the higher rate, and so on. You can also invest through the IFISA (the tax-advantaged account), which won\u2019t tax you on your capital gains. However, not all peer to peer lending platforms<\/a> offer IFISAs – we don\u2019t offer one at Swaper.<\/p>\n

Look up the wealth tax and capital gains tax in your country and then see if there are any allowances or tax-advantaged accounts for P2P investing. Type in \u201cP2P investing + [your country]\u201d or “P2P lending<\/a> + [your country]” in the local language and see what comes up. You\u2019ll likely find resources and tips on how to pay taxes on investments.<\/p>\n

Can I set off bad debt?<\/h2>\n

One of the advantages of peer to peer investing is that in some cases, you may be allowed to offset your losses against your taxes. These losses are from bad debt – borrowers who haven\u2019t repaid their loan.<\/p>\n

This, once again, does depend on your country. In the Netherlands, Estonia, Finland and Germany, you cannot offset your losses against your P2P gains – you can in Belgium, Switzerland, the UK and France. If you\u2019re unsure, do a quick Google search in the language of the country and see what you find.<\/p>\n

How do I pay my taxes?<\/h2>\n

You are responsible<\/a> for your own taxes and will need to pay them yourself, usually through a yearly tax self-assessment. At Swaper, we\u2019ve made it easy to gather all your information together and export it onto an Excel spreadsheet; simply head to My Investments > Account Statement and you\u2019ll be able to see a breakdown of all your transactions and loan information.<\/p>\n

You can then use these numbers on your self-assessment and pay the right amount of tax. If you invest in various P2P platforms, it can get quite complicated quickly so make sure you allocate enough time to do all your calculations.<\/p>\n

Here are a few ways to optimise your P2P investing tax bill:<\/p>\n