The government has today (17 October) launched a consultation on how best to include peer-to-peer (P2P) loans in existing stocks and shares Isas, or whether a new type of Isa should be developed specifically for them.
In the Budget the chancellor announced equal subscription limits for cash and stocks and shares in Isas, increasing the overall limit to £15,000. He also mentioned that Isa eligibility would be extended to include P2P loans.
This consultation - which closes on 12 December - will seek views on whether P2P loans should be subject to the same transfer requirements as existing Isa investments, as well as whether they are suitable assets to be held in Child Trust Funds and Junior Isas.
The Treasury will publish a ‘summary of responses’ document and necessary legislation will be amended so to include P2P lending in some form, although there no fixed date on implementation at this stage.
David Gauke, financial secretary to the Treasury, stated: “P2P lending is an exciting, innovative new sector and it’s right that investors who want to lend money via P2P platforms should be able to hold these loans in their Isa alongside more traditional investments.”
The P2P lending sector matches individuals with money to lend with individuals or small businesses looking to borrow money, and has been growing at a rate of over 100 per cent per year, with over £1.6bn lent to date.
At the moment, the interest that lenders earn from lending money via P2P platforms is taxable, but coming within an Isa wrapper would make it tax-free.
Allowing P2P loans to be held in Isas will provide greater choice to Isa investors, and will support the government’s aim to diversify the different sources of finance that are available to borrowers by encouraging the growth of the P2P lending sector, the consultation says.
Rhydian Lewis, founder and chief executive of RateSetter, the biggest P2P lender in the UK by monthly volume, called the consultation a “tipping point”.
“By allowing the higher rates of interest on offer to be shielded from tax, the inclusion of P2P will breathe new life into Isas.
“The appetite is certainly there: research we carried out with Populus earlier this year revealed that two-thirds of people will consider trying P2P when it is Isa-able.
Mr Lewis noted that the government already agreed that the P2P platforms will be able to act as Isa managers, offering their own product and retaining direct interaction.
“We are delighted that they are also considering a third Isa category that opens up a new choice to the polarised options of cash or investments – providing that missing link between low returns and high risk.”
Christine Farnish, chair of lobbying group P2PFA, said: “This is a vote of confidence from government in our industry which is bringing much needed competition to the banking sector.”
peter.walker@ft.com
