Savers who invest their money with peer-to-peer lending websites such as Zopa could see their returns become tax-free after the government said it was considering how to put them into the Isa system.
Peer-to-peer (P2P) lenders, such as Zopa, Rate Setter and Funding Circle, act as middlemen by matching people who have some money to invest with people or small businesses who want to borrow it.
The way many of the websites now operate mean that investing money through them can seem similar to putting money in a normal fixed-rate savings account – but the returns are much higher, at a typical 4% to 7%.
Record low interest rates on savings accounts have prompted savers to look elsewhere for returns and there are now over 100,000 people investing in peer-to-peer lending, according to trade body The Peer-to-Peer Finance Association (P2PFA).
George Osborne said in this year’s budget that Isa eligibility would be extended to include P2P loans in order to broaden savers’ choices over how they invest, but it was unclear exactly how this would work.
Now the government has launched a consultation into how best to implement these changes, including asking whether P2P loans should be included in existing stocks and shares Isas, or whether there should be a new third type of Isa that they could come under.
“We are delighted the government has published its proposals to include peer to peer (P2P) lending in Isas,” said Christine Farnish, the chair of the P2PFA. “Consumers who lend on p2p platforms will be able to earn tax free returns in future and the increased flow of funds will allow us to offer great value loans to more credit worthy borrowers. This is a vote of confidence from government in our industry, which is bringing much needed competition to the banking sector.”
Savers who choose to invest in peer-to-peer lending were given a further boost in April this year when the sector became regulated by the Financial Conduct Authority (FCA). However, savers are not covered by the Financial Services Compensation Scheme, which protects the first £85,000 (per banking institution) should it go bust.
The consultation will close on 12 December.
