HM Revenue & Customs is investigating ways to allow peer-to-peer lending to be included in tax-free Isas, it has been reported.
According to the Telegraph, the department has started talks on how to give tax breaks to the growing practice, which is carried out through peer-to-peer websites such as Zopa, RateSetter and Funding Circle and links lenders directly with borrowers.
Sources told the newspaper that discussions over allowing P2P lending in Isas are at early stages, although the Government is keen to support the sector as it has the potential to alleviate the lack of lending coming out of banks.
Current tax rules mean individuals involved in P2P lending have to declare their interest earned in the annual tax return and pay varying amounts of tax depending on their income band. However, P2P returns can be affected by late or missed payments and defaults, while these losses are not tax-deductible.
Supporters of P2P lending argue that allowing it to be included in Isas will offer significant benefits to those already involved in the practice and support the emerging asset class.
Earlier this year, the Government permitted companies listed on the Alternative Investment Market to be held in Isas, allowing investors to add exposure to some of the UK’s smallest businesses.