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Summer Budget: P2P ISA lets investors lend tax free

Investors using peer-to-peer lending will benefit from tax-free interest from next year.

Summer Budget: P2P ISA lets investors lend tax free

A new Innovative Finance ISA that allows investors to put their money into peer-to-peer (P2P) lending will be launched next year.

This third category of ISA will sit alongside cash ISAs and stocks and shares ISAs and will allow investors to earn interest from P2P loans tax free.

P2P lending has grown massively in recent years and so far £1.8 billion has been loaned by P2P platforms.

P2P platforms match up savers willing to lend with individuals or companies who want to borrow money. The popularity of P2P lending has grown as interest on standard savings accounts have fallen as the rates earned on P2P are typically higher, although there is a risk with P2P that you could lose your money.

In its summer Budget notes the government said it would ‘introduce the Innovative Finance ISA for loans arranged via a P2P platform, from 6 April 2016’ and also published a consultation on whether to extend the list of investments allowed in the new third-way ISA.

The consultation looks at whether investors loaning money by purchasing bonds or buying an equity stake in a company via a crowdfunding platform should be allowed to hold their investments via the Innovative Finance ISA.

Bruce Davis, cofounder of crowdfunding platform Abundance, said: ‘This is exciting and important news for UK investors who will soon be able to get even better returns, via ISA tax relief, from a wide range of innovative new investments that will easily beat cash ISA returns but avoid the bigger risks of investing in a stocks and shares ISA.

‘This new middle ground solution will help to encourage more money to be invested in productive assets rather than cash deposits that contribute virtually nothing to either savers’ personal finances or the productivity of the real UK economy.’

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