What is Crowdfunding?

Full Definition

Crowdfunding is a way of raising finance by pooling small contributions from many people, usually through an online platform. In the UK it takes several forms: reward-based (backers receive a product or perk), donation-based (no return expected), equity crowdfunding (investors receive company shares), and debt or peer-to-peer lending (the money is repaid with interest). Equity and lending platforms are regulated by the Financial Conduct Authority. For businesses, it can provide capital and validate demand without traditional bank borrowing, though platforms charge fees and campaigns can fail to reach their target. Equity crowdfunding investments may qualify for SEIS or EIS tax relief if the company and shares meet the conditions, which can significantly reduce an investor's risk. Tax treatment depends on the structure: reward funds may count as trading income, donations usually do not, and equity stakes can trigger Capital Gains Tax or dividend tax later. Investors should remember that early-stage shares are illiquid and capital is at risk.

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