Budget 2014: Peer-to-peer loans allowed into Isas
The increasingly popular peer-to-peer (P2P) loans sector received a fillip from the government today when it announced that people would be able to hold p2p loans within an Isa.
In a Budget designed to benefit Britain's savers and investors, chancellor George Osborne's announcement on P2P means they will now be able to access tax-free returns that are usually higher than those offered by traditional high street savings providers.
However, Osborne did not reveal exactly when P2P loans will be included in the Isa wrapper.
Rumours began circulating that the government would announce Isa eligibility for P2P products at the time of the Autumn Statement in December 2013, but Osborne neglected to mention the sector.
P2P websites pair savers and investors with individuals or companies that need to borrow money, acting like middle-men in that they offer a place for the two groups to come together and agree lending arrangements.
The Financial Conduct Authority is set to take regulatory responsibility for the P2P sector in April - a move that will legitimise products that are already used by hundreds of thousands of people in the UK. The Budget announcement will be a further boost to the popularity of P2P.
Kevin Mountford of Money Supermarket said: "The new rules will also allow for peer-2-peer lending to be included within a tax-free ISA allowance which will be particularly beneficial as rates on P2P investments are generally higher than with standard cash savings accounts."
According to data from Funding Circle, 41% of investors said they would invest more in peer-to-peer lending if it was included within Isas; while one in ten people said they would transfer their existing stocks and shares into peer-to-peer lending.
James Meekings, co-founder of Funding Circle said: "This represents a seminal moment for our industry. The inclusion of peer-to-peer lending in Isas ensures British people earn inflation-beating, tax-free returns whilst helping support the country's economic recovery. Today's news will open up peer-to-peer lending to a new audience."
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).