HM Treasury has confirmed debt securities like bonds will be held within the Innovative Finance Isa, as well as the ‘simple’ loans offered by the peer-to-peer (P2P) sector.
Draft legislation published by the Treasury on Tuesday (9 August) outlined the changes to the existing Isa rules.
The Innovative Finance Isa, often referred to as the peer-to-peer Isa, was launched in April this year, despite the vast majority of peer-to-peer providers being without the full permissions to offer it to investors amid delays at the regulator.
In April the Treasury’s head of business lending admitted the Isa had been slow to get off the ground, but said he is confident the rules are ready to include crowdfunding in the Autumn.
When former chancellor George Osborne announced the fresh Isa back in July last year, he hinted at an extension of the Isa-eligible investments, proposing it also include debt securities and equity offered through crowdfunding platforms.
This has come to fruition now the Treasury is seeking responses to the draft legislation, with a view to it going live from November this year.
Debt securities, which include debentures or bonds, are tradable, creating the liquidity to allow investors to cash-in earlier.
They are therefore different from the ‘simple’ personal loans currently allowed in Isas through P2P lenders, which allow investors to lend to people or an established business.
Abundance was the first peer-to-peer platform to receive full permissions to offer the new Isa when it launched on 6 April.
Its managing director Bruce Davis said: “The peer-to-peer and crowdfunding market represents a range of different investment models and it is good to see a level playing field being established between debt securities and loans-based platforms.”
Mr Davis pointed out that debt securities are a more established and formalised product type than the P2P loans, and - because they are tradable - fall under a large set of regulatory obligations, which aim to give the investor and lender greater security, protection and flexibility.
If the legislative changes are given the green-light, Mr Davis said his investors would then be able to invest in renewable energy and other social infrastructure projects, while enjoying their returns free of personal tax.
The risk involved may be higher than some investors or advisers would expect. Tony CattTony Catt, IFA and compliance officer at Anthony Catt Limited, said this change was a recognition of a growing source of funding, and said it provides some diversification for Isa investors as part of a portfolio.
“I believe that investors need to beware, because the risk involved may be higher than some investors or advisers would expect.”
He pointed out the returns will be reliant on the quality of the end borrowers and the underwriting processes involved in the lending decisions.
“It should generate higher returns than normal corporate bonds, but the returns will reflect the rate of risk involved.”
katherine.denham@ft.com
