Individuals who participate in peer to peer lending are currently liable to income tax on the full amount of interest received. There is no relief for bad debts against the interest received.
The government has published draft legislation to allow relief for bad debts against P2P income. The new relief will have effect for losses incurred on all eligible P2P loans on or after 6th April 2016. It will also allow individuals to make claims for losses arising on eligible P2P loans during the 2015/16 tax year. A technical guidance note was published on 9th December 2015.
This tax relief will allow investors to counter-balance the losses they incur on irrecoverable loans against the interest they receive from successful, repaid loans. It is hoped this will give rise to an increase in P2P lending in the future.