A new Isa set to launch in April that allows savers to invest in peer-to-peer (P2P) loans tax-free will be of 'little benefit to consumers or the P2P industry' in its current form, as it only allows savers to invest in the loans available through a single P2P loan provider, according to P2P technology provider Goji.
Under current proposals, peer-to-peer lenders will be able to gain approval to offer the new Innovative Finance Isa (Ifisa) from April, granting savers access to the loans offered by the provider in a tax-free wrapper.
However, according to Goji, current regulation does not allow for so-called 'P2P investor platforms' to gain permission to offer the Ifisa. These would provide access to loans through a number of different providers, as fund platforms do for funds.
They do not presently exist for P2P providers (though they do for other products), but Goji expects them to become established as the P2P market grows.
As savers will only be allowed to have one Ifisa at any one time, the current arrangement means that individuals will be restricted to investing in the loans of just one provider in any tax year.
According to Jake Wombwell Povey, managing director and co-founder of Goji, this will limit consumer choice, hinder competitiveness and increase risk as investors will be unable to diversify their P2P holdings across a number of different providers.
'While the government's intentions with the Ifisa are well meaning, the practical application of the proposed rules will not enable the policy intentions underlying the proposed arrangements to be met,' says Wombwell Povey.
He adds: 'One of the key drivers of the new legislation is to "increase choice for Isa investors by introducing a new form of tax-advantaged account"; however, only allowing individual access to the Ifisa through a single P2P provider will stifle investor uptake.'
Wombwell Povey has written an open letter to HMRC outlining his concerns, in which he calls on the government to allow future 'investor platforms' to gain Ifisa authorisation.
In the letter he points out that under existing stocks and shares Isa regulation, a company that only issues its own shares cannot register as an Isa account manager, but a firm that offers access to the shares issued by a number of companies would be eligible to register as an Isa manager.
In view of this, he recommends that 'further thought' be given to allowing aggregator platforms to become registered as Ifisa managers.
'Ifisas have the potential to add billions of pounds worth of value to the British economy. Under the current proposals, it will be challenging for investors to take advantage of this opportunity.
'The legislation must be amended to enable investor platforms, many of whom are already tried and tested Isa managers, to create the market choice that is key to the new product's success,' Wombwell Povey concludes.