Something momentous has happened to the UK peer-to-peer lending industry, as the government finally confirmed its plans to introduce a new type of Isa covering peer-to-peer loans. This boost for the sector comes a decade after my company Zopa pioneered the concept back in 2005.
This new Isa is game-changing for peer-to-peer platforms but even more so for our lenders.
From next April, the new innovative finance Isa (Ifisa) will include peer-to-peer loans. This means everyday consumers will be able to lend over £15,000 tax free, with the Isa limit due to rise in line with inflation next year, and they may be able to transfer funds from existing Isas as well.
Zopa and other members of the industry body, the Peer-to-Peer Finance Authority, have been pushing for years to make interest from peer-to-peer loans tax-free. In our view, it is only fair that peer-to-peer is treated in the same way as bank savings and stock-market investments when it comes to the tax system.
UK savers have suffered long enough from poor returns since the financial crash and this new Isa will be a big boost for millions of Brits to earn more by lending to fellow consumers or businesses and get a better deal in the process.
I see this as further validation of what we do and it is a strong sign from the Treasury that peer-to-peer lending has become a mainstream investment option. I also expect this to bring a significant increase in the popularity of peer-to-peer lending across the UK as a result.
Lobbying for change is never an easy process, so we’re delighted to see that the Chancellor is open to services like Zopa by committing to making the Isa system as simple, clear and diverse as possible by including peer-to-peer as its own asset class.
As if the innovative finance Isa wasn’t good enough news for lenders, it will be launched at the same time as the new personal savings allowance. This will allow individuals to receive up to £1,000 in savings or loan interest without being liable for income tax. It means peer-to-peer lending will have a double tax efficiency from the start of the new tax year in 2016.
The advantage of an innovative finance Isa means lenders will have the ability to build up a substantial holding over the course of several years or even decades as interest and capital will remain tax-free as reinvesting repayments will compound over the years.
As platforms it is now our job to get on with building the innovative finance Isa product for April so we can help millions of people grow their money.