Bring on the Lending ISA!IFISA
Budget 2015. It appeared to be the ideal setting for an announcement on the peer-to-peer ISA. Of course, 12 months earlier Chancellor of the Exchequer George Osborne had set pulses within the peer-to-peer lending industry racing when he declared that people would be entitled to hold P2P loans within an Individual Saving Account (ISA), and the momentum continued as HM Treasury (HMT) confirmed in their Autumn Statement that a new third-way ISA could be introduced – one tailored specifically to peer-to-peer lending.
The significance of a new ISA coming into being is not to be underestimated either. For the present tax year, an individual is able to shield up to £15,240 per annum from tax courtesy of the ISA framework, and can do so through either (or both of) the Cash ISA and Stocks & Shares ISA. The mere inclusion of P2P lending within this structure is likely to have a huge effect, with the UK sector set to explode from £2 billion to £45 billion in the next few years as a result.
However, failure to introduce a third-category ISA would mean returns from P2P lending would end up falling under the existing Stocks & Shares wrapper, which would come as a disappointment to both platforms and their customers. The very nature of peer-to-peer lending as an investment sits somewhere between savings and stocks in terms of risk and reward, and to include it within the Stocks & Shares ISA would make it something of a misfit.
Lenders need (and want!) a new category of ISA
More importantly, it could create complexities in terms of the implementation process, and make it tougher for platforms to clearly define and communicate the risks and rewards involved to customers when including peer-to-peer lending in their tax-free savings portfolio.
Significantly, consumers in the industry have already had their say in a survey conducted by the Peer-to-Peer Finance Association earlier this year. The group polled over 4,500 lenders across different platforms, and the following results overwhelmingly echoed our calls for a LISA:
- 95% welcomed the UK Government’s decision to include peer-to-peer lending within the ISA wrapper
- 74% said they like the idea of keeping their peer-to-peer lending in a separate ISA
- 81% agree that peer-to-peer lending has different characteristics to investments in a Stocks and Shares ISA
- 81% agreed that a Lending ISA will introduce more choice across the investments market
- If the Government introduces a third-way ISA, 62% said they will definitely invest in one
And so, with platforms and the masses alike having made their opinions clear, the sector waited with baited breath for the Budget speech on 8 March to find out if HMT had made their decision. As it happened, it wasn’t to be, and the Treasury later confirmed that, in collaboration with the Financial Conduct Authority, they would announce the nature of the incoming structure this summer, with a view to implementing it in the third or fourth quarter of 2015.
Certainly, it was a vague timeline of events. But with Osborne having hastily scheduled an ‘emergency’ Budget for Wednesday 8 July after the Conservatives’ election triumph, there is cause for optimism that this will mark the occasion for the news everyone involved with P2P lending wants to hear.
Simple, flexible, and just plain better
If the separate ISA does materialise, we’ll pop the champagne corks and then immediately get to work so that we are at the ready to offer ISAs once the structure is in place. However, should the decision go the other way, we’ll acknowledge what would still be a breakthrough for the industry, and swiftly ensure that our lenders can easily create and transfer money into their existing ISA.
Yet principles such as simplicity and flexibility have been at the heart of peer-to-peer lending’s sustained progress, and the creation of a new ISA type would not only be in keeping with these, but also represent resounding recognition from Government and HMT of P2P’s growing importance as a mainstream investment option.
So Mr Osborne, on behalf of peer-to-peer lending platforms across the board, and the many thousands of people currently benefitting from them, we implore you… give us the peer-to-peer ISA!