Tax Implications of personal lending
Punk Money is a platform that allows friends and family members to lend each other money and even charge some interest on their loans if they wish. A question we get asked often is, will I have to pay tax on the loan? It’s a great question and we’ll outline some key bits of information in this article.
Disclaimer: Punk Money is not a financial advisor and this article is not intended as financial advice. If you need financial advice please contact HMRC or a tax and finance professional.
It’s a common misconception that because friend and family loans are a personal arrangement, there won’t be any tax implications, but this is not always the case.
For loans without interest, there should be no tax implications as neither the lender or borrower is making any money so you shouldn’t need to inform HMRC.
However, if there’s interest involved, it may be liable as income and you’ll need to inform HMRC and fill out a self-assessment or submit it as part of your tax return.
Using the Punk Money platform will give you all the information you need to make this process of reporting your tax easy, including the terms of the loan and the interest you’ve earned. So you can simply show HMRC whether or not the interest has been applied.
For further advice, Contact HM Revenue & Customs (HMRC) for advice on the tax implications of loans between friends and relatives.