Peer-to-peer lending: how is it viewed by IRS?

I'm curious as to how the IRS treats UK peer-to-peer lending accounts from the perspective of the investor?

I'm talking about websites such as Zopa or Ratesetter which act as financial matchmakers between savers and borrowers. Since April 2014 these are regulated by the Financial Conduct Authority in the UK. In the next few months you will be able to open one of these within a new Innovative Finance ISA (IF-ISA) which makes the UK tax situation a lot easier. The simplest of their accounts on the surface look like a savings account in that you put your money in and get paid interest. There is a higher risk involved obviously, and with that a better interest rate than a normal savings account.

https://www.zopa.com/lending

https://www.ratesetter.com/?tcm=Savings&tcr=general

How would an account like this need to be declared on a federal tax return? Would it be just the same as a bank account?

Do these companies accept US persons at all? Do they do FATCA reporting to HMRC? If you can't find out, ask the companies as they may already know the answers to your questions.

I don't know the answer to your questions but there are similar companies in the US so at least they are not strange to the IRS.

https://www.lendingclub.com/

https://www.peerform.com/

Correct; but they are not subject to FCA and the AIFMD and other compliance regimes.

Do these companies accept US persons at all? Do they do FATCA reporting to HMRC? If you can't find out, ask the companies as they may already know the answers to your questions.

Good points. I have read the T&Cs of Zopa as an example and there appears to be nothing there restricting a US person:

• 1. To register with us you must meet our Eligibility Criteria. This means that, subject to Principle 2.2.2:
  
      1. you must be an individual, at least 18 years old, living in the United Kingdom ("UK"); and
      2. you must have a current account in your own name with a UK bank.
  
  2. To be eligible as a Lender, you must either:
  
      1. not be lending in the course of any business; or
      2. be an individual or legal entity authorised and regulated by the Financial Conduct Authority to carry on the activity of entering into a regulated credit agreement as lender or specifically exempt from that activity ("Lending Business").

There is no mention of anything regarding FATCA so I would have to ask them.

Even if they don't it wouldn't stop you doing a voluntary declaration on the FBAR would it?

Lending through these platforms is considered an investment, not savings. I was more wondering whether these are treated like PFICs and taxed accordingly or not?

you'd certainly need to pay tax on it - difficult question as to whether it would be classed as a PFIC or not, but there is definitely a risk that it could be classed as a PFIC when reading the definition of PFIC liaised below. Likely the best option would be to invest in the US where you would get the standard tax reports listed below

http://www.lendacademy.com/lending-club-and-prosper-tax-information-for-2016/ [nofollow]

https://www.law.cornell.edu/uscode/text/26/1297 [nofollow]

you'd certainly need to pay tax on it - difficult question as to whether it would be classed as a PFIC or not, but there is definitely a risk that it could be classed as a PFIC when reading the definition of PFIC liaised below. Likely the best option would be to invest in the US where you would get the standard tax reports listed below

http://www.lendacademy.com/lending-club-and-prosper-tax-information-for-2016/

https://www.law.cornell.edu/uscode/text/26/1297

This is a bizarre suggestion. Most Americans in the UK would prefer to invest in Sterling and in a jurisdiction with high levels of easily accessible investor protection.

Zopa replied to me but I don't think they specifically answered the question I asked which was about FATCA reporting:

"Anyone who's at least 18 years of age with a UK residency and UK current account can lend at Zopa without any restrictions, given they can provide evidence upon request. Reports of annual returns on all lenders are sent to HMRC."

you'd certainly need to pay tax on it - difficult question as to whether it would be classed as a PFIC or not, but there is definitely a risk that it could be classed as a PFIC when reading the definition of PFIC liaised below. Likely the best option would be to invest in the US where you would get the standard tax reports listed below

I don't have a bank account or any income in the US. I would never invest there as it would just create different problems with HMRC here in the UK.

Bank savings rates are so low now. For someone with a bit of savings it hard to put it to good use without incurring difficulties either with HMRC or with IRS. It's really frustrating.

I don't have a bank account or any income in the US. I would never invest there as it would just create different problems with HMRC here in the UK.

Bank savings rates are so low now. For someone with a bit of savings it hard to put it to good use without incurring difficulties either with HMRC or with IRS. It's really frustrating.

A ROTH is a good way for a US person to invest as long as they have set one up ahead of leaving the US or they can find a financial institution that will open one for someone living outside the US; I think Schwab might do that.