Peer-to-peer loans can count towards ISA limit, says UK government

In its budget statement (120-page / 2.15MB PDF), the Treasury announced that individuals will be able to designate money invested in peer-to-peer loans as tax-free individual savings accounts (ISAs).

The announcement was part of wider reforms to the ISA system which will see existing annual limits on the amount savers can individually invest in cash ISAs and stocks and shares ISAs without being taxed scrapped. Instead, a new overall limit has been created which will allow individuals to invest up to £15,000 each year in qualifying ISAs whichever way they choose, including in the context of peer-to-peer loans.

The changes will be effective from 1 July.

"To further increase the choice that ISA savers have about how they invest, ISA eligibility will be extended to peer-to-peer loans, and all restrictions around the maturity dates of securities held within ISAs will be removed," the Treasury's budget statement said. "The government will also explore extending the ISA regime to include debt securities offered by crowdfunding platforms."

Financial regulation expert Monica Gogna of Pinsent Masons, the law firm behind Out-Law.com, said: "It is exciting to see the government acknowledge this innovative industry in this manner and indicate a desire to bring peer-to-peer loans into the more established list of investments for ISAs. It will be interesting to see how the debate unfolds with respect to the possibility other types of debt securities being included in the future. This is definitely ‘one to watch’ in the coming weeks and months."

Earlier this month a new regulatory regime for peer-to-peer lending platforms was finalised. Under the new framework, which kicks-in in part from April, loan-based crowdfunding platforms will be required to hold a certain amount of capital in reserve to mitigate against the risk of their business failing and leaving lenders out of pocket. They will also have to correspond to a number of other financial services and consumer protection rules. Compliance with the new framework is to be overseen by the Financial Conduct Authority (FCA).

In December last year, a report by innovation charity Nesta revealed that the value of funding provided through crowdfunding, peer-to-peer and invoice trading platforms almost doubled in 2012 and again in 2013. The research, carried out in conjunction with the Universities of Cambridge and California, Berkeley, found that intermediaries operating in the sector raised almost £1 billion last year.