The 19-page guidance sets out the rules on how to apply income tax relief for irrecoverable loans that occur on P2P investments under Chapter 1A of Part 8 Income Tax Act 2007.

This tax relief allows P2P loans that become irrecoverable to be relieved by the lender against interest that they receive from other P2P loans.

P2P lending enables individuals and businesses to lend to each other through the intermediary of an internet platform, thereby avoiding raising finance through banks, for example. P2P lending platforms are regulated by the Financial Conduct Authority under Part 4A of the Financial Services and Markets Act 2000.

The purpose of this relief is to ensure that people who invest in P2P loans are subject to tax on the return that they make from their lending portfolio as a whole.

This will create a level playing field for the taxation of income from P2P lending when compared to the taxation of traditional forms of retail investment and bring the tax position of the P2P sector in line with other forms of investment products available for individuals to purchase, such as collective investment schemes.

As a result, for UK individuals, if the lender is an individual subject to UK income tax on their income from the loan, and makes loans through a regulated UK platform, then if a loan becomes irrecoverable it should qualify for relief.

This tax relief does not affect non-UK taxpayers.

Persons subject to corporation tax will not be eligible for this relief, but may be able to claim a deduction for any losses under the loan relationships regime.

The P2P guidance will be included in the savings and investment manual SAIM 12000.

The Income Tax relief for irrecoverable peer to peer loans: final guidance is available here