This news follows on from George Osborne’s announcement in March that peer-to-peer investments will be permitted within the tax-friendly wrapper. The consultation will address the logistics of how the p2p ISA would work – and whether a new type of ISA need be created for the purpose. Inclusion within ISAs for p2p investments is set to boost the already superior returns of the sector by making them exempt from income tax – saving 40% for higher-rate taxpayers.
HM Treasury said:
“The government is helping savers by increasing the simplicity, flexibility and generosity of ISAs. We also want to encourage growth in the peer-to-peer sector as part of our plan to increase competition in the banking sector and diversify available sources of finance for businesses.
“The government will consult informally on allowing peer-to-peer loans within ISAs before launching a public consultation later this year.”
As perhaps is to be expected, the practicalities of combining p2p investments with the tax-efficient wrapper may prove difficult. The options that have been floated thus far are as follows:
The platforms could offer stocks and shares ISAs that invest solely in p2p lending. The issue here is that this would limit the options available to investors – who can only invest in one cash ISA and one stocks and shares ISA every year. This move would prevent savers from buying any shares or funds in an ISA elsewhere.
An alternative solution is that the platforms provide full stocks and shares ISAs – offering not just their p2p investment but also shares and funds so that investors can buy diversified ISAs.
The third option is that a new type of ISA be created specifically for p2p platforms. Investors could then continue looking elsewhere for broader stocks and shares or cash ISAs.
James Meekings, Co-Founder at Funding Circle, appears hopeful for the latter option:
“I think government wants to be in a place where people don’t have to put all their money in a p2p lender in an Isa year. So I’m hopeful this will happen.”
The various platforms are already in discussions with execution-brokers that provide ISA wrappers. Danny Cox of Hargreaves Lansdown said:“In the short term, we almost certainly won’t offer it [p2p]. In the long term, provided the products are robust and there aren’t issues on liquidity and scalability, then I think it’s viable. But it’s a long time away.”
Quotes from the FT (http://www.ft.com/cms/s/0/c09268c4-ebf4-11e3-ab1b-00144feabdc0.html#ixzz349s9QA1B)
