The Autumn Statement included a number of boosts for peer-to-peer lending and crowdfunding.
This week's Autumn Statement included a number of changes which will make these less mainstream investments more attractive to all of us.
Peer-to-peer lending
Peer-to-peer lending connects individual savers looking to improve returns on their spare cash with individuals or companies looking for loans. Thanks to websites like Zopa, Funding Circle and RateSetter, peer-to-peer lending is booming here in the UK, with lending doubling in the first six months of this year.
At present, lenders cannot offset failed loans against the interest they earn, so as to reduce their tax bills. The Chancellor announced that's going to change though from the 2016/17 tax year.
This is a much fairer deal for peer-to-peer lenders, as it puts them in the same position as banks and other lending institutions that have always been able to offset their bad debts against corporation tax. One peer-to-peer site estimates that as a result of this tax relief lenders' returns will be boosted by 25%.
The Chancellor is also going to consult on the introduction of a 'withholding regime' for Income Tax across peer-to-peer lending platforms from April 2017. This would be similar to the tax taken at source from savings interest and would mean that some individuals will no longer have to declare peer-to-peer returns on their yearly tax returns.
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Crowdfunded bonds
Crowdfunding involves businesses or individuals raising money for investment from ordinary people. In many cases, these fund-raising exercises involve issuing debt securities (essentially IOUs) known as bonds to participating lenders.
The Chancellor is consulting on whether to allow investors to include crowdfunded, debt-based securities inside ISAs. Were this to happen, then interest and capital gains from crowdfunded bonds would no longer be taxable, making these corporate IOUs a much more attractive option to investors.
As with peer-to-peer lending, the Treasury also intends to "review financial regulation which currently stands in the way of institutional lending" through crowd-funding platforms. With both peer-to-peer and crowdfunding, this would allow traditional lenders into the market, which would likely send industry growth through the roof.
[SPOTLIGHT]What's more, as they grow, these forms of alternative financing would exert increasing pressure on banks' lending margins, bringing down the cost of borrowing for individuals and smaller companies.
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Renewables excluded from EIS/SEIS
Hardly a Budget or Autumn Statement goes by without the Chancellor of the day tinkering with the tax incentives on offer for investing in start-up or early-stage businesses.
So it proved again this week, as George Osborne unveiled more tinkering with the Enterprise Investment Scheme (EIS) and Seed EIS (SEIS) tax-advantaged schemes. The Chancellor took with one hand while giving something back with the other.
First, the bad. The Chancellor intends to ban investors in renewable-energy firms from benefiting from the very generous tax breaks on offer via Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs). That may seem fair enough, as these tax-incentivised schemes are designed to support risky businesses and not those whose revenues largely come from Government-guaranteed Feed-In Tariffs (FITs).
But with renewables accounting for about £60 million of the £360 million invested in these tax schemes over the past year, this market looks set to shrink by about a sixth when this new ban comes into effect.
On the plus side, in order to make EIS and SEIS investing easier and less bureaucratic, the Chancellor announced a new 'digital process' for registrations. To be created in 2016, this new online system will allow both investors and companies to register digitally for EIS and SEIS. Then again, as well as making investing in these tax-advantaged vehicles simpler, it will also make it easier for HM Revenue & Customs to track companies and investors participating in these schemes.
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More on investing:
Peer-to-peer ISAs to be delayed
Beginner's guide to buying and selling shares