Savers will be able to shelter any returns from peer-to-peer lending activities in a tax-free individual savings account (ISA), according to reports.
Chancellor George Osborne is expected to launch a consultation on allowing peer-to-peer or crowdfunding websites into ISAs when he presents his Autumn Statement on 5 December, The Telegraph reports.
Peer-to-peer lending is a way for small business, organisations and individuals to raise capital in order to grow. Typically, it involves a number of people pooling money through a website, often called a platform.
As it stands, investors who use peer-to-peer (P2P) websites such as Zopa, RateSetter or Funding Circle have to include any interest earned on their self-assessment tax returns and pay tax on any positive returns. Under the new plans, positive returns will be sheltered from this tax within the ISA.
The peer-to-peer lending industry has been enjoying rapid growth in recent years, largely fuelled by the low-interest rate environment as savers turned to peer-to-peer lending to get better returns than low rates offered by the banks.
Daniel Rajkumar, managing director of rebuildingsociety.com, said: "This marks a seismic shift in the savings industry and would be an excellent move to encourage a new wave of P2P investors who can help create a thriving SME sector in the UK. As a result, both borrowers and investors benefit.
"Given the government's move to focus attention on business lending, this complementary strategy represents long term support for the industry. With this announcement and impending regulation next year, we anticipate participation levels to soar through increased media coverage and independent financial advisers recommending the product."
The Financial Conduct Authority (FCA) has recently proposed new rules for regulating the peer-to-peer lending industry.
Under the proposals, consumers who want to invest in small or start-up businesses via crowdfunding platforms will receive clearer information about the business in which they are investing.
The watchdog said investors willing to lend money to companies through peer-to-peer crowdfunding websites will receive explanations of the key features of the loans as standard.
Jason Hollands of Bestinvest warned: "While peer-to-peer lending can work well, it is important to understand that unlike normal UK bank savings accounts, this type of activity isn't covered by the Government backed Financial Services Compensation Scheme which in the event of collapse of an institution protects each person with assets of up to £85,000 per financial institution.
"And while peer-to-peer lending will come under FCA regulation from next April, which is welcome, it is unlikely in our view that it will be covered by the scheme."
The Chancellor's consultation is expected to run for three or four months, with any changes likely to come into force in April 2015.
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