The government risks muddying the waters over Isas by including more complicated investments within the tax wrapper, John Spiers has warned.
The chief executive of wealth manager EQ Investors warned that the new so-called IFIsas are “looking even more iffy”.
Mr Spiers, who founded London-based Bestinvest and made £100m when he sold it in 2007 to private equity firm 3i, warned that, from April, Isa investors would need to be much more careful as more complex and higher risk assets became eligible.
He said: “We have known for some time that a new Innovative Finance Isa (IFISA) will become available from April 2016 to accommodate peer-to-peer loans.
“Investors will be able to allocate their entire Isa allowance (£15,240) in any way they like across IF, cash or stocks and shares Isas. I’ve been nervous about this for some time because I don’t feel this is the right time to confer the level of respectability that is associated with Isas to what is still a relatively new type of investment, untested through a full economic cycle.”
He added that default rates on loans could increase in a recession but nobody knows how much that will affect a typical book of P2P loans, nor how a collapse of one of the P2P platforms might affect investors.
In October, Yorkshire Building Society carried out research that revealed a lack of understanding about P2P among consumers.
Just 42 per cent claimed to be familiar with the term and, of those, 60 per cent were unaware that they had no protection under the FSCS. Only 6 per cent of IFAs believed there would be a rise in consideration from consumers because of the increased Isa flexibility.
The UK P2P lending investment now totals about £3.5bn.
Andy Caton, executive director at Yorkshire Building Society, said: “While it is important savers are ensuring they are not missing out on tax breaks from the government, it is equally vital that they are fully aware of the risks associated with different types of investment.”
Chris Budd, principal of Bristol-based Ovation Finance, said of the opening up of eligible Isa investments to include P2P lending: “I’d say it’s a good thing as long as there is a mechanism to properly explain the risks and illiquidity of each investment.”