Peer-to-peer loans will now be given tax-free status, the government announced in this week’s Budget.
The move follows a consultation between the government and peer-to-peer lenders over the past few months.
Over the past three years, in excess of 300,000 people have lent more than £240m through Funding Circle alone.
Julia Groves, managing director of renewable energy crowdfunder Trillion Fund and chair of the UK Crowdfunding Association, said: “It is win/win for the Government, who want to create better access to finance for SMEs as well as encourage saving in a tricky, low-rate environment.
“Above all, it is a great achievement for the game-changing innovations made by the platforms and for the pioneering lenders and businesses who have brought the industry to this point.”
Crowdfunding allows individuals and small businesses to raise money from pools of investors who put money into peer-to-peer lending schemes or securities such as unlisted shares.
The Financial Conduct Authority believes most crowdfunding should be targeted at sophisticated investors who know how to value a start-up business and understand the risks involved.