The Third ISA is the best solution for savers

The burgeoning peer to peer lending (P2PL) industry, where investors and savers wishing to lend are matched with individuals or companies wishing to borrow, has been boosted by the launch of the HM Treasury consultation on the new peer-to-peer lending ISA. It raises many questions designed to determine the best way to bring peer-to-peer loans within the scope of ISA qualifying investments and, as an open consultation, is looking for answers from all interested parties.

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One of the key questions is whether a third separate ISA for peer to peer loans should be established, sitting alongside the existing Cash ISA and the Stocks & Shares ISA, rather than incorporated within the Stocks & Shares ISA.  They ask “would that help to highlight the different rules which will apply to peer-to-peer loans within ISAs?”  The answer is “Yes” to that one! 

P2P lending is fast becoming a popular alternative funding option for both consumers and businesses and a peer to peer loan ISA will offer a huge opportunity for savers with enhanced interest rates available in a tax-free environment.  As many savers will be new to peer to peer lending, it is important that explanations about these opportunities and the differences in the way savers’ funds are held by ISA Managers and how savings can be withdrawn, are crystal clear.  The third, separate ISA will also give maximum choice to savers about how much of their £15,000 annual limit they allocate to each type of ISA investment.  When they consider the risk spectrum, the peer to peer loans ISA will sit neatly between the low-risk Cash ISA and the higher-risk Stocks & Shares ISA.

The consultation period concludes on 12 December at which point the feedback will be assessed, conclusions drawn and timescales for implementation determined.

With some £2 billion successfully loaned so far through P2P platforms, industry experts have no doubt that the inclusion of peer to peer loans within the ISA will be a huge turning point for the industry.  Current predictions expect that P2P lending will be a £45bn market within the decade as a result – excellent news for P2P lenders, savers and borrowers alike.

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