A consultation opened today suggests a third kind of ISA - separate from the cash and stocks & shares tax-free products - is the best way to accommodate the government's desire to encourage the P2P market.
Over £1.5bn has been lent via P2P websites, which provide a platform for consumers to loan money directly to individual or business borrowers, in recent years.
Chancellor George Osborne (pictured) announced in the Budget this March that the loans would qualify for ISA inclusion in future, thereby making the interest received tax free, but questions remained over implementation.
While leaving open the idea of including P2P loans in a stocks & shares ISA, the consultation suggested the creation of a separate, third ISA for P2P "might assist both investors and ISA managers in clearly understanding the different provisions that apply."
Anticipating a pick-up of activity as a result of the inclusion of loans in ISAs, the consultation proposes to make the provision of advice to investors regarding P2P loans a regulated activity. Firms already authorised to provide investment advice will not need additional authorisation.
It added the Financial Conduct Authority will consider whether the remit of the Financial Services Compensation Scheme should be broadened to include P2P loans in 2016.
‘Transferability' and valuation
The ability to transfer investments represents a "sticking point" for P2P, according to Hargreaves Lansdown, which described the space as "an interesting market".
"Investors have to have the option to transfer an ISA which, in the case of a P2P lender, might involve cash transfer after unwinding deals. Investors would have to accept the risk of a low percentage in the pound if they chose to redeem early," Hargreaves said.
The consultation acknowledges issues over transfers, and has proposed ways to address the issue, including insisting on platforms providing access to a secondary market, and ensuring sales are made at market value during a given period.
The consultation will close on 12 December 2014.