Contractors' IFA backs plan for P2P loans in ISAs

An independent financial adviser to contractors is backing plans to let savers hold peer-to-peer (P2P) loans in their ISAs which would allow returns to be entirely tax-free.

Contractor Money (CM) said it welcomed proposals in a Treasury consultation to set a “third type of ISA,” either as part of today’s ISAs for cash and shares, or as a separate account.

The adviser says the new ISA would be for people who loan money to individuals or firms via P2P platforms, which tend to offer higher rates of return but lower rates on borrowing.

Currently, interest that people 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.

The new account was floated in Budget 2014, when the government announced that ISA eligibility would be extended to P2P loans in order to increase investment choices for savers.

It is this greater choice that pleases ContractorMoney, but as P2P lending is not covered by the Financial Services Compensation Scheme, the accounts are not to be entered into lightly.

“P2P ISAs might not be for everyone - as there’s bound to be considerable risk involved - yet it’s positive to see a broadening in the options for savers and potentially businesses too.”

The IFA added that P2P as an alternative to the high street for those needing a cash boost could help limit the side-effects from the “chronic lack of support” that start-ups get from banks.

CM’s founder Tony Harris said: “Funding for enterprising-types needs desperate attention as the UK has lifted the crown of ‘self-employment capital of Europe,’ but still struggles to fund start-ups wanting to grow out of being merely one-man bands.”

At the time of writing, P2P had enabled £1.6billion worth of loans, chiming with comments that such a lending model is “exciting” and “innovative,” according to David Gauke.

The financial secretary to the Treasury also said: “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.”

Interested parties can have their say on P2P ISAs, including on whether such loans should be subject to the same transfer requirements as ISAs and whether they should be held in CTF and Junior ISAs, until December 12, when the consultation closes.

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Written by Simon Moore

Simon writes impartial news and engaging features for the contractor industry, covering, IR35, the loan charge and general tax and legislation.
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