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21 Aug 2013

HMRC To Include P2P Lending In ISAs

HM Revenue and Customs is looking for ways to include peer-to-peer lenders in tax-free individual savings accounts, the Telegraph reports.

The service, provided online, is an alternative to banks in their capacity of intermediary, and links borrowers directly to lenders, allowing them to tailor individual, mutually-beneficial terms. Its popularity has been growing in the face of unattractive interest rates on savings in cash and the volatility of equity markets.

The main hurdle to making this asset class suitable for ISAs are tax considerations. Currently, P2P income is taxable, depending on the income band of the investor, but returns themselves are variable, depending on the timeliness of payments. Losses, in case of a borrower defaulting, are not tax-deductible. Furthermore, it is unclear where the P2P funds should fall in an ISA scheme: in the cash savings or the investment section.

The Government has been eager to support a tax break for the P2P sector as it provides a much-needed alternative to difficult bank loans, and is a partial compensation for budget measures aiming to boost the economy. Including P2P deals in ISAs will give a breath of fresh air to investors already practising this sort of lending – numbering in the tens of thousands. Earlier in the year, in another effort to stimulate individual investors, companies traded on the Alternative Investment Market were given government clearance to be included in ISAs, giving investors exposure to small enterprises.

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