Peer to Peer lending platforms received approval from the very top as the Government unveiled a new ISA in the July Budget.
From the next tax year in 2016, investors will be able to gain tax-free interest on loans made through P2P lending platforms like the House Crowd and Funding Circle of up to £15000 as long as it’s contained within the new Innovative Finance ISA.
And, significantly, this tax-free bonus on P2P returns may be extended to other crowdfunding investment platforms offering share equity.
The chancellor, George Osbourne, said: “The Government will introduce the innovative finance ISA, for loans arranged via a P2P platform, from 6 April 2016 and has published a public consultation on whether to extend the list of ISA eligible investments to include debt securities and equity offered via a crowdfunding platform.”
There had been a process of consultation by the HMRC earlier in the year, so change was anticipated.
However, it was largely expected that any tax breaks would be subsumed within the existing stocks and shares ISA rather than the introduction of a new, third ISA.
£15000 for the Three ISAs
While the new ISA clearly gives investors more choice, with three ISAs now allowing – combined – tax-free returns of £15000, the move is massively symbolic for the burgeoning P2P sector.
It sends a strident message that P2P investing is becoming a mainstream, accepted and viable part of any investor’s portfolio.
It will also prove easy to set-up and use.
P2P lenders will act as IF ISA managers, and the investor allocates a balance up to the ISA limit to their account each year to enjoys tax-free returns on this amount.
The House Crowd has already offered peer to peer lending projects and plans to offer more, while it’s likely all House Crowd investments can be contained in an ISA wrapper by next May.
Many pundits believe the mooted public consultation will serve to rubber stamp the extension of the IF ISA to crowd funding platforms offering equity.
As ever, though, the risks should be understood before any investment. The new ISA will have different risks on potential returns just as the investment opportunity is different.
But this does nothing to diminish a move that testifies to the growing maturity of the P2P investment market
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