In the United Kingdom, an individual can lend their own money on a one-off basis without authorisation, but any lending carried on as a business and any P2P platform fall under the Financial Conduct Authority, while interest received remains taxable by HMRC.
Consumer Credit Act 1974: where regulated activity begins
The Consumer Credit Act 1974 and the FCA authorisation regime target credit granted in the course of a business. A one-off loan between relatives, with no commercial approach, generally falls outside these rules and is governed by ordinary contract law.
Since April 2014, P2P platforms supervised by the FCA
Since 1 April 2014, operating an electronic peer-to-peer lending platform has been an FCA-authorised activity. The operator must publish risk information, segregate client money and plan how loans will be managed if the platform itself fails.
The FSCS does not cover money placed in P2P
Unlike a bank savings account, a loan made through a P2P platform is not protected by the Financial Services Compensation Scheme. If the borrower does not repay, the British investor bears the loss, which authorised platforms must state clearly in their documents.
No general usury rate, but a cap on very short credit
British law sets no usury rate for private loans. For authorised lenders of high-cost short-term credit, however, the FCA caps interest at 0.8 % per day and the total cost at 100 % of the amount borrowed.
What to include in a British loan agreement
A written loan agreement names the parties, the amount in pounds sterling, the rate, the repayment schedule and the governing law. Our template loan contract between individuals provides a starting point, to be reviewed by a British solicitor.
Scotland and Northern Ireland: separate legal systems
England and Wales share one body of law, but Scotland applies Scots law and Northern Ireland has its own courts. Security over property is called a standard security in Scotland, and a registered charge with HM Land Registry in England.
Interest received: Personal Savings Allowance and Self Assessment
Interest on a private loan counts as savings income. HMRC grants a Personal Savings Allowance of 1 000 £ for basic rate taxpayers and 500 £ at the higher rate; above that, you declare through Self Assessment. Our guide to private loan taxation adds detail.
Innovative Finance ISA and losses on P2P loans
Loans made through an authorised P2P platform can be held in an Innovative Finance ISA, with interest tax-free within the annual ISA allowance. An unrecoverable P2P debt can, under HMRC conditions, be offset against other P2P interest.
A written-off family loan: the Inheritance Tax risk
A British lender who gives up on repayment turns the loan into a gift. If the donor dies within seven years, that sum may count towards Inheritance Tax. A dated written agreement and traceable repayments prevent disputes between heirs.
Loan fee fraud: advance-fee scams in Britain
The most common fraud promises a guaranteed loan, then demands insurance, admin or solicitor fees before payout. Scammers sometimes impersonate authorised firms: this mechanism is detailed in our report on the loan scam lender, with the signs that give it away.
Report Fraud, Police Scotland and APP reimbursement
Since December 2025, Report Fraud has replaced Action Fraud for England, Wales and Northern Ireland; in Scotland, victims call Police Scotland on 101. Tell your bank too, because an authorised push payment fraud may entitle you to reimbursement.
Recovering a private debt in the British courts
In England and Wales, a claim up to 10 000 £ normally goes through the county court small claims track. In Scotland, the sheriff court simple procedure handles small claims. Limitation periods differ: six years against five.
Arranging a private loan in the UK step by step
- Check any firm or platform offering to lend or invest your money on the FCA Register and the FCA Warning List.
- Draft a loan agreement signed by both parties, stating the amount in pounds, rate, term, schedule and governing law (English or Scots).
- Send the funds from a UK bank account after a Confirmation of Payee check, never in cash, crypto-assets or gift cards.
- Keep a repayment table and every bank statement as evidence in case of a dispute or an HMRC check.
- Declare to HMRC, through Self Assessment if required, any interest received above the Personal Savings Allowance.
- If an offer looks doubtful, consult Citizens Advice or MoneyHelper before signing or paying anything.
Indicative costs and caps for a peer-to-peer loan in the UK
| Item | Order of magnitude (GBP) | Comment |
|---|---|---|
| Interest rate between individuals | Free, no general usury rate | Cap of 0.8 % per day for authorised high-cost short-term credit (indicative) |
| P2P platform commission | Varies by platform | Check the fees published by the FCA-authorised operator |
| Solicitor review | Fees set freely | Ask for a written quote before instructing |
| Tax on interest | Allowance of 1 000 £ or 500 £ by tax band (indicative) | HMRC tax rates apply above it |
| Fees demanded by a fake lender | Total loss of sums paid | APP reimbursement possible under conditions, ask your bank |
Papers to gather before lending or borrowing in pounds sterling
- Passport or UK driving licence for both parties
- Recent proof of address (utility bill, council tax)
- Signed and dated loan agreement with the schedule attached
- Bank details: sort code and account number
- Proof of the initial transfer and statements of repayments
- FCA registration number of the platform used, where relevant
- Copy of the Self Assessment return showing the interest
Warning signs and common mistakes in the UK
- Paying insurance or registration fees before receiving the funds: no serious British lender works that way.
- Trusting a firm that quotes an FCA number without checking that its contact details match the official register, a typical clone firm technique.
- Accepting a loan offered by private message on Instagram, Facebook or WhatsApp, a favourite channel of fake lenders and money mule recruiters.
- Lending a large sum to a relative without a loan agreement, which makes proof harder before the county court or the sheriff court.
- Forgetting to declare to HMRC interest exceeding the Personal Savings Allowance, risking penalties and late-payment interest.
Your questions about private loans in the UK
Do I need FCA authorisation to lend to a friend in the UK?
As a general rule, no, when the loan is a one-off and not part of a business. However, regularly lending to strangers for a return can count as a credit activity, carried on illegally without authorisation. If in doubt, a solicitor or the FCA can clarify the position.
Are British P2P platforms guaranteed by the state?
No. Authorised platforms are supervised by the FCA, but the money lent is not covered by the FSCS. The risk of borrower default stays with the lender, which is why diversifying and reading the risk warnings matter.
Does the loan itself have to be declared to HMRC?
HMRC is mainly interested in interest received, taxable above the applicable allowances. An interest-free loan generates no income, but writing it off may be treated as a gift. Rules change, so confirm your situation with HMRC or a qualified tax adviser.
Where should I report a loan scam depending on the UK region?
In England, Wales and Northern Ireland, reports go to Report Fraud. In Scotland, contact Police Scotland on 101. In every case, alert your bank immediately and report the suspicious firm to the FCA.