There is strong demand from the public for a new type of ISA dedicated to peer-to-peer lending, also being dubbed a LISA.
The government announced at the end of 2014 that P2P loans should be included in the ISA (individual savings account) system. But the main obstacle at the moment seems to involve working out what kind of ISA is appropriate for P2P.
At present, there are two types: cash ISAs, which are essentially a type of bank or building society savings account; and stocks-and-shares (or investment) ISAs, in which individual shares as well as investment funds and other assets such as corporate bonds can be held.
Much of the P2P industry and a number of analysts think that P2P does not sit easily in either category – P2P is not guaranteed in the same way cash savings are, but nor does it carry the same level of risk as many stock market investments.
Therefore, they argue, it should sit within its own dedicated ISA aka the LISA: new research published this week by the P2PFA suggests that consumers agree.
The organisation surveyed 4,500 current P2P lenders, and found;
More than 80% said that P2P lending had “different characteristics” to investments in stocks-and-shares ISAs (if P2P is not given its own ISA, this is where it is most likely to be categorised)
Almost two-thirds said that they would make use of a P2P ISA if one was introduced
Overwhelmingly, 95% welcome the Government’s decision to include P2P lending within the ISA wrapper
74% say they like the idea of keeping their P2P lending in a separate lending ISA
81% agree that a LISA will introduce more choice across the investments market
One of the arguments against a dedicated peer-to-peer ISA is that it will make the system too confusing – but in the P2PFA’s survey, 57% of respondents said a new ISA would not be likely to overcomplicate matters.
The association’s chair, Christine Farnish, says: “The survey’s results give a clear message: consumers want to see greater choice across the ISA market and the creation of a Lending ISA is a positive and necessary step.
“Peer-to-peer lenders and consumers fully back the decisions that have already been made by the government, but it is quite clear that they do not want to see peer-to-peer lending shoehorned into either the cash or the stocks-and-shares category of ISA because it is different in kind.”
The main advantage of being able to lend through an ISA would be that any returns are free of income tax, as they are on cash ISAs. The current annual limit for ISA holdings is £15,000, and this will rise to £15,240 from April 6 when the 2015-16 tax year begins.
P2P lenders are to get a further tax break from the government in the coming financial year: also from April 6, any losses arising as a result of bad debts can be written off against gains for the purposes of assessing income tax.
Clarification on the ISA status of P2P is set to be made public at the end of March, full details will be published on this blog as soon as we have them.