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Posted Sun, 30 Oct 2022 15:51:59 GMT by Kenneth MacArthur
Hi, I have an investment with the Estonian peer-to-peer lender Bondora - in particular, in their "Go & Grow" product. (NB: The Go & Grow product has two 'tiers' - the original tier, which has a 6.75% pa rate of return, and the "Unlimited" tier, which has a 4% pa rate of return. These two tiers are otherwise the same product, and the distinction between the tiers is not relevant here.) The Go & Grow product is different to 'traditional' peer-to-peer lending in that you are not investing in specific loan parts. The loan parts are abstracted away, and you are simply investing in Bondora itself - you don't know what the underlying loan investments are. Instead of "interest", you receive what are described as "returns" (which are accrued daily). Bondora claim that the tax treatment of Go & Grow for Estonian residents* is different to that for its traditional peer-to-peer lending offering, with tax only being due when you withdraw more than the principal. Before anyone jumps in and says, "Well, of course information relevant to Estonian residents doesn't apply to UK residents", that is obvious. :) I provide the above information only for context. What I am wondering is what the UK tax treatment of an investment in this product would be. I can think of four possibilities: 1) The returns are taxed as savings interest (as with interest on 'traditional' peer-to-peer loans), despite not technically being interest. 2) The returns are taxed as a capital gain, but, unlike with an investment in, say, stocks, capital gains tax is chargeable on the "returns" accrued within a particular UK financial year, regardless of whether any of those returns (or the principal) have been sold/withdrawn (ie, how tax on interest works). 3) The returns are taxed as a capital gain, but only when an amount greater than the principal is sold/withdrawn, with capital gains tax being chargeable on the difference between the amount sold/withdrawn and the principal (ie, the same as the Estonian tax treatment). 4) The returns are taxed as a capital gain, but only when some amount is sold/withdrawn, with capital gains tax being chargeable on a pro-rata share of that amount (eg, if the principal was €1000, the value of the investment rose to €1200 over time, and €600 was then sold/withdrawn, capital gains tax would be due on 600-((600/1200)*1000) = €100). Which of these possibilities is the correct one?

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Posted Fri, 11 Nov 2022 13:01:34 GMT by HMRC Admin 32

This is interest arising from the investment and would be subject to Income Tax and not Capital Gains Tax. Capital Gains Tax arises on the the gains from the disposal of an asset.

Thank you.

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