At Budget the Chancellor announced a radical reform of the ISA system, turning it into a simpler product with an equal subscription limits for cash, and stocks and shares, and increasing the overall limit to £15,000. He also announced that ISA eligibility would be extended to include peer-to-peer loans in order to increase choice for savers about how they invest.
Today (17 October 2014) the government is publishing a consultation on how best to implement these changes, including whether P2P loans should be included in existing stocks and shares ISAs, or whether they would be best suited to a new, third type of ISA.
Financial Secretary to the Treasury David Gauke said:
We want to support savers at all stages of their life and make sure they have greater flexibility and choice over how they invest and access their savings.
That’s why as part of our long-term economic plan we announced a radical package of measures at Budget – reducing taxes for the lowest income savers, reforming ISAs and giving people flexibility over their pensions.
P2P lending is an exciting, innovative new sector and it’s right that investors who want to lend money via P2P platforms should be able to hold these loans in their ISA alongside more traditional investments.
The P2P lending sector matches up individuals with money to lend with individuals or small businesses looking to borrow money, and has been growing at a rate of over 100% per year with over £1.6 billion lent via P2P to date. At the moment, the interest that lenders earn from lending money via P2P platforms is taxable, but once P2P loans can be held in ISAs then it will be possible to earn interest entirely tax free.
Allowing P2P loans to be held in ISAs will provide greater choice to ISA investors, and will support the government’s aim to diversify the different sources of finance that are available to borrowers by encouraging the growth of the P2P lending sector.
The consultation opened today and closes on 12 December 2014. It also seeks views on whether P2P loans should be subject to the same transfer requirements as existing ISA investments, and whether they are suitable assets to be held in Child Trust Funds and Junior ISAs.
Once this consultation has closed the government will consider all responses and will publish a ‘summary of responses’ document. Taking the consultation responses into account, necessary legislation will be amended so that peer-to-peer lending may be included in ISAs. This will determine the timetable for implementation and therefore no fixed date can be set at this point.