Government to consider new peer-to-peer lending ISA

The Treasury is launching a consultation on a proposal to create a third and different ISA for peer to peer lending, in a move which could propel the concept into the front rank of financial options.

The plan is to create one for people who lend money direct to borrowers over the internet using peer-to-peer lending sites, adding to the two longstanding ISAs for cash and shares.

Peer-to-peer websites accept money from savers which in turn they lend out to individuals or businesses.

Whilst they often attract an above-average return, the risks are arguably higher.

In this year’s Budget Chancellor George Osborne announced that in future the loans would qualify to be included in ISAs, making the interest received tax free.

However there was a question mark over how it would be done. Unlike the bank deposits in Cash ISAs, the new ISA is not protected by the Financial Services Compensation Scheme.