P2P ISA Announcement, Just Days Away

By AltFi on Wednesday 1 July 2015

Alternative Lending

The possibility of including peer-to-peer lending in an ISA wrapper is likely to be confirmed later this month in the July Budget.

George Osborne first addressed the issue in his 2014 Budget and after a month long consultation back in October and many believe that the Chancellor will confirm the plans later this month.

There have been three different options for the treasury to weigh up to decide what is best:

  1. The platforms offer stocks and shares ISAs that invest solely in P2P lending.
  2. The platforms provide full blown stocks and shares ISAs – offering P2P investments alongside shares and funds so that investors may buy diversified ISAs.
  3. A new type of ISA be created specifically for peer-to-peer lenders.

The inclusion of peer to peer lending in ISAs could deliver a tax break of up to £400 per year for investors.

Rhydian Lewis, CEO at RateSetter, has commented on the upcoming announcement:

“We look forward to the Chancellor finally giving the thumbs up to including peer-to-peer lending in ISAs in the Budget.  Hard-pressed investors deserve better than the pitiful rates currently offered by cash ISAs. 

“For example, rates for five-year cash ISAs are typically languishing at just over 2 per cent. Investing £15,240 in RateSetter’s five-year product yields around three times that at 6.5 per cent before tax.  The difference amounts to hundreds of pounds in interest each year.

“By including their RateSetter investment in an ISA, a higher-rate taxpayer would save £396 in tax on a total of £990 in interest in the first year, almost doubling their net income. For a basic rate taxpayer the equivalent tax saving is a £198.”

Alongside the confirmation it is likely that the chancellor is to announce another consultation, this time designed whether to extend the list of ISA eligible investment products to include a broader range of “debt and equity securities offered via crowd funding platforms”.

Back when then this year’s budget was announced Louise Beaumont of GLI Finance revealed that she is fully behind including more products.

Dr. Beaumont explained:  

“We welcome the government’s decision to extend the range of investments eligible for ISAs in 2015-16 and in particular its decision to hold a consultation on how to include peer-to-peer loans. Whilst this would represent a huge step forward for the industry, it must be accompanied by proper regulation and oversight. As an industry, we must ensure that when the inevitable happens and a platform does blow up, any resulting loss of investor confidence does not signal the end of a sector which is beginning to fill a critical gap in the credit ecosystem.”

Sign up for our newsletters

Your daily 7am download of all things alternative finance and fintech.

Fintech and alternative finance headlines with an exclusive Editor's Note each week. Delivered Monday at midday.

AltFi's new weekly US newsletter breaking down the ins and outs of America's burgeoning fintech sector. Delivered Monday 9am EST/ 6am PST.