j
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Post by j on Oct 17, 2014 8:28:58 GMT
Apologies if duplicating a thread but could not find older ISA thread.
Important update from TC today as per below with this government press release:
Plans to enable savers to hold peer-to-peer loans in their Isas which will allow their returns to be entirely tax free have been set out by the Government.
Peer-to-peer (P2P) lenders act as middlemen by matching people who have some money to invest with people or small businesses who want to borrow it.
The potential returns on offer from the fledgling industry can often be much higher for those investing money than they could get from a more traditional savings account, although this type of investment does not have the protection of the Financial Services Compensation Scheme (FSCS), which compensates savers by up to £85,000 if their bank or building society goes bust.
At the moment, the interest that lenders earn from lending money via P2P platforms is taxable, but once P2P loans can be held in Isas then it will be possible to earn interest completely tax free.
Chancellor George Osborne announced an overhaul of Isas in the Budget, which included increasing the annual amount that can be put away tax-free to £15,000. Savers can now choose to hold all of that amount in cash, stocks and shares, or any combination of the two.
Mr Osborne also announced in the Budget that Isa eligibility would be extended to include P2P loans in order to broaden savers' choices over how they invest.
The Government today launched a consultation into how best to implement these changes, including asking whether P2P loans should be included in existing stocks and shares Isas, or whether there should be a new third type of Isa which they could come under.
The move could provide further opportunities for savers who are still struggling to get decent returns for their money.
According to financial website Moneyfacts, of the 833 savings accounts on the market, including Isas and non-Isas, only 322 pay enough interest to beat the effects of tax and inflation.
Financial Secretary to the Treasury David Gauke said: "P2P lending is an exciting, innovative new sector and it's right that investors who want to lend money via P2P platforms should be able to hold these loans in their Isa alongside more traditional investments."
The P2P sector is growing rapidly and to date, more than £1.6 billion has been lent through it.
The consultation will close on December 12 and the Government will then look at amending legislation so that P2P lending can be included in Isas.
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Post by davee39 on Oct 17, 2014 11:43:33 GMT
I found the bit you missed out on the message more illuminating "Our initial thoughts are that the risk profile of peer to peer loans is very different from stocks and shares and it will be confusing to try to combine the two asset classes into a single type of ISA. For that reason it would be much better to establish a new type of ISA specifically for peer to peer lending. " So TC is trying to pretend that a third ISA is required because the investor will find it "confusing" if they are mixed with S&S. They must think their investor base is pretty stupid! Worryingly it should be fairly easy to convince the FCA of this since the FCA assumes all investors are stupid. In reality TC just want a captive capital base. They don't want to share that capital with units trusts/ETFs/ITs and don't want to share it with other P2P platforms. This is understandable as the more captive capital they have the more they can drive down yields and the more borrower deal flow they can generate, leading to bigger profits. From my perspective this would be a really bad outcome. We're finally getting rid of the illogical separation between cash and S&S ISAs and then we risk another arbitrary separation. Why should P2B loans be separate from S&S? The corporate bond fund I can buy in my S&S ISA is far closer in risk to a portfolio of P2B loans than to a cash deposit (though most P2B platforms don't want their "saver" to think that). Moreover, long-term this will totally kill off the possibility of seeing P2P/P2B investing added to the normal fund supermarket platforms. The ability to move ISA money easily between asset classes should be a priority for all investors but this will make it very hard to sell an S&P 500 fund to buy a P2B loan portfolio etc. You are suggesting that the P2P ISA should allow you to include investments across multiple platforms. This implies that a fund supermarket might need to integrate with P2P providers to 'allocate' a proportion of ISA funds. This does not happen with Cash ISAS, which have to be invested with a single provider each year. It seems perfectly sensible for the P2P platforms to create their own ISA products, and for lenders to choose one platform each year for their ISA cash. Any other solution would add complexity, delays and higher fees. You refer to a P2B loan portfolio. This could be a separate bundled product like the P2P Investment Trust launched recently. These managed products would of course qualify as an asset class in an S&S ISA, but someone needs to do the bundling. I have no experience of TC, but would consider it highly innovative if a major P2P or P2B created its own trade-able bonds, invested in its own loans.
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Post by batchoy on Oct 17, 2014 12:00:45 GMT
I found the bit you missed out on the message more illuminating "Our initial thoughts are that the risk profile of peer to peer loans is very different from stocks and shares and it will be confusing to try to combine the two asset classes into a single type of ISA. For that reason it would be much better to establish a new type of ISA specifically for peer to peer lending. " So TC is trying to pretend that a third ISA is required because the investor will find it "confusing" if they are mixed with S&S. They must think their investor base is pretty stupid! Worryingly it should be fairly easy to convince the FCA of this since the FCA assumes all investors are stupid. In reality TC just want a captive capital base. They don't want to share that capital with units trusts/ETFs/ITs and don't want to share it with other P2P platforms. This is understandable as the more captive capital they have the more they can drive down yields and the more borrower deal flow they can generate, leading to bigger profits. From my perspective this would be a really bad outcome. We're finally getting rid of the illogical separation between cash and S&S ISAs and then we risk another arbitrary separation. Why should P2B loans be separate from S&S? The corporate bond fund I can buy in my S&S ISA is far closer in risk to a portfolio of P2B loans than to a cash deposit (though most P2B platforms don't want their "saver" to think that). Moreover, long-term this will totally kill off the possibility of seeing P2P/P2B investing added to the normal fund supermarket platforms. The ability to move ISA money easily between asset classes should be a priority for all investors but this will make it very hard to sell an S&P 500 fund to buy a P2B loan portfolio etc. You are suggesting that the P2P ISA should allow you to include investments across multiple platforms. This implies that a fund supermarket might need to integrate with P2P providers to 'allocate' a proportion of ISA funds. This does not happen with Cash ISAS, which have to be invested with a single provider each year. It seems perfectly sensible for the P2P platforms to create their own ISA products, and for lenders to choose one platform each year for their ISA cash. Any other solution would add complexity, delays and higher fees. You refer to a P2B loan portfolio. This could be a separate bundled product like the P2P Investment Trust launched recently. These managed products would of course qualify as an asset class in an S&S ISA, but someone needs to do the bundling. I have no experience of TC, but would consider it highly innovative if a major P2P or P2B created its own trade-able bonds, invested in its own loans. I came to the conclusion when the P2P ISA was first announced that you would have two types of P2P ISA one platform based, i.e. you chose your platform that invest your ISA there for that year's investments and one broker based i.e. you choose your broker and they do cross platform investing and take a cut of the interest in fees. In the latter case whether you get to pick the loans is dependent on either the broker investing upfront and reselling the loans or on the P2P Platforms having APIs so that the broker can build their own multi platform frontend
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Oct 17, 2014 12:53:31 GMT
According to the 2013-14 statistics there was £38.8 Billion invested in Cash ISAs and a further £18.4 Billion invested in S&S ISAs.
The UK P2P market is currently £1.6 Billion. Allowing existing ISA investments to switch to Peer 2 Peer could be a severe shock to lending rates, so I'm hoping a new ISA is created.
However, I would like to see legislation to allow existing P2P investments to be switched.
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Post by davee39 on Oct 17, 2014 13:28:25 GMT
However, I would like to see legislation to allow existing P2P investments to be switched. That does not need legislation, it would be up to the platforms. Assuming you had £20k invested in P2P for 5 years. It might be straightforward for £15k to be swapped into the ISA product, or the platform might require the investment to be made as new money. There might even be some surprises, such as Zopa coming up with a new Lending Model for ISA's, or FC implementing a software change that actually works (Probably needs a miracle for that to happen). The words 'Tax Free' should give the stronger platforms a big boost. The smaller platforms would become less attractive - a sensible lender might not want to tie up a tax free allowance on a Provider with no lending opportunities.
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Post by batchoy on Oct 17, 2014 13:51:33 GMT
However, I would like to see legislation to allow existing P2P investments to be switched. That does not need legislation, it would be up to the platforms. Assuming you had £20k invested in P2P for 5 years. It might be straightforward for £15k to be swapped into the ISA product, or the platform might require the investment to be made as new money. There might even be some surprises, such as Zopa coming up with a new Lending Model for ISA's, or FC implementing a software change that actually works (Probably needs a miracle for that to happen). The words 'Tax Free' should give the stronger platforms a big boost. The smaller platforms would become less attractive - a sensible lender might not want to tie up a tax free allowance on a Provider with no lending opportunities. Transferring existing investments could be a real technical nightmare for some platforms, but it would in principle be just SM transaction with a restricted buyer, what would be nigh impossible is transferring your funds from one P2P ISA to another P2P ISA from a different provider should it contain non-tradeable loans or simple the mere fact that there was not the volume of cash circulating in the SM to cover the sale of the loans to facilitate the withdrawal of the cash to move it to another platform.
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baldpate
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Post by baldpate on Oct 17, 2014 15:09:15 GMT
Although I'm sure that many existing lenders would love to be able to transfer some or all of their existing loan portfolio into an ISA wrapper 'in kind' (i.e without selling, subscribing the proceeds in cash, and re-purchasing), I think the likelyhood of HM Treasury permitting this is almost vanishingly small. You should consider that (with the exception only of shares in an Employer's SAYE scheme) the Treasury does not permit shares to be subscribed directly into an S&S ISA. I just cannot see the Treasury giving preferential treatment in this respect to P2P holdings.
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Oct 17, 2014 16:09:59 GMT
That does not need legislation, it would be up to the platforms. Assuming you had £20k invested in P2P for 5 years. It might be straightforward for £15k to be swapped into the ISA product, or the platform might require the investment to be made as new money. There might even be some surprises, such as Zopa coming up with a new Lending Model for ISA's, or FC implementing a software change that actually works (Probably needs a miracle for that to happen). The words 'Tax Free' should give the stronger platforms a big boost. The smaller platforms would become less attractive - a sensible lender might not want to tie up a tax free allowance on a Provider with no lending opportunities. Transferring existing investments could be a real technical nightmare for some platforms, but it would in principle be just SM transaction with a restricted buyer, what would be nigh impossible is transferring your funds from one P2P ISA to another P2P ISA from a different provider should it contain non-tradeable loans or simple the mere fact that there was not the volume of cash circulating in the SM to cover the sale of the loans to facilitate the withdrawal of the cash to move it to another platform. I have assumed that any P2P ISA (PISA) would be a separate account on each platform, in the same way you can have a normal saving account and a Cash ISA with a building society. The means of depositing funds into a PISA would be subject to the same process that applies with ISAs. Before your PISA goes live, lenders could switch any or all of their existing P2P loan units from their normal P2P account to a new PISA account. There would be a cut-off date after which no more loan units could be switched. The PISA account would then go into a transient state until settled by making an ISA transfer into the account. The settlement must cover the whole amount. The surplus account balance would be sent to your normal P2P account. The PISA account then goes fully active. Transferring your funds from one P2P ISA to another P2P ISA from a different provider would use the same process of that already existing for Cash ISAs.
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j
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Penguins are very misunderstood!
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Post by j on Oct 17, 2014 16:54:02 GMT
The UK P2P market is currently £1.6 Billion. Allowing existing ISA investments to switch to Peer 2 Peer could be a severe shock to lending rates, so I'm hoping a new ISA is created. True but, given a choice between earning 2-3% pa in a cash isa or tripling/quadrupling that in a p2p isa (albeit unprotected by £85k limit), many would choose the latter.
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Post by batchoy on Oct 17, 2014 17:17:31 GMT
Transferring your funds from one P2P ISA to another P2P ISA from a different provider would use the same process of that already existing for Cash ISAs. Please explain how it would be that simple. Unless loan parts can be transferred between platforms (can you really see AC taking on parts of loans from FC) then the loans parts in the P2P ISA would have to be converted to cash to make the transfer. However to convert them to cash loans parts have to be sold have somebodyelse which presents several issues fisrtly there may be no liquidity in the SM (particularly at the peak transfer period) so there would nobody to buy up the loan parts. Additionally some of the loan parts may have defaulted in someway and thus are non-tradable and whilst there may be some recoverable value this would theoretical at best. For a P2P ISA to be transferable as you suggest the P2P Platforms would need to carry cash reserves equivalent to the value of the funds held in the P2P ISAs on the Platform so that they could guarantee to taken on the loan parts if everyone decided to transfer and there was nobody else on the platform willing to take up the loan parts.
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Oct 17, 2014 17:44:57 GMT
The UK P2P market is currently £1.6 Billion. Allowing existing ISA investments to switch to Peer 2 Peer could be a severe shock to lending rates, so I'm hoping a new ISA is created. True but, given a choice between earning 2-3% pa in a cash isa or tripling/quadrupling that in a p2p isa (albeit unprotected by £85k limit), many would choose the latter. I agree. I meant that the severe shock would be to P2P lending rates.
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Oct 17, 2014 18:00:56 GMT
Transferring your funds from one P2P ISA to another P2P ISA from a different provider would use the same process of that already existing for Cash ISAs. Please explain how it would be that simple. Unless loan parts can be transferred between platforms (can you really see AC taking on parts of loans from FC) then the loans parts in the P2P ISA would have to be converted to cash to make the transfer. However to convert them to cash loans parts have to be sold have somebodyelse which presents several issues fisrtly there may be no liquidity in the SM (particularly at the peak transfer period) so there would nobody to buy up the loan parts. Additionally some of the loan parts may have defaulted in someway and thus are non-tradable and whilst there may be some recoverable value this would theoretical at best. For a P2P ISA to be transferable as you suggest the P2P Platforms would need to carry cash reserves equivalent to the value of the funds held in the P2P ISAs on the Platform so that they could guarantee to taken on the loan parts if everyone decided to transfer and there was nobody else on the platform willing to take up the loan parts. OK. Each P2P platform would be an PISA provider, just the same as you can spread your Cash ISA between several banks or building societies. If you wanted to move funds from one P2P ISA to another P2P ISA you would need to sell your loan units, make a PISA transfer and reinvest on the other platform. I'm not advocating that traditional ISA providers manage your P2P investments, existing ISAs and PISAs would be completely separate.
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Investor
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Post by Investor on Oct 17, 2014 19:35:05 GMT
ISA p2p piece in the Evening Standard tonight by Chris Blackhurst. Links ISA p2p's with 'financial education' requirements to ensure 'we must equip them (savers and pensioners) mentally first'. Two quotes stand out...."except that the reason p2p offers a higher return is that it carries far greater risk". Not sure what RS would make of "far" with thier risk rating of 1 compared to cash at 0. Or even 'every lender...every penny/cent(for the new Australian RS venture). Second quote may me laugh "...leading money...using one of the Internet sites such as Zoopla and Ratesetter has mushroomed". Think the authors detailled due diligence may be questionable.
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mikes1531
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Post by mikes1531 on Oct 17, 2014 22:26:10 GMT
If you wanted to move funds from one P2P ISA to another P2P ISA you would need to sell your loan units, make a PISA transfer and reinvest on the other platform. This might work in theory, but the fact is that some P2P platforms do not have a secondary market, so selling units isn't possible. Others have restrictions on what can be sold, so that some loans are unsaleable. And others have selling fees that make selling expensive. So, while it sounds like a good idea, it might not be practical. I came to the conclusion when the P2P ISA was first announced that you would have two types of P2P ISA one platform based, i.e. you chose your platform that invest your ISA there for that year's investments and one broker based i.e. you choose your broker and they do cross platform investing and take a cut of the interest in fees. I was hoping that the result would be of a broker-based type, but organised slightly differently than described by batchoy, and I'm not convinced it would be necessary for the broker to take a significant cut of earnings for their fees. I have a S&S ISA with HL, and it's basically self-directed. I can buy shares or funds, and the HL fee structure is based simply on the size of my account. So I was hoping that when it became possible for P2P/P2B to be included in ISAs, I would be able to direct HL to make an investment in the platform of my choice in the same way that I now can instruct them to buy shares or funds. It would be up to the P2P/P2B platforms to provide a product that could be purchased this way, with the probably most likely route being the creation of something like a fund holding a diversified collection of their loans. There would be a cost to the P2P/P2B platforms to setting up and operating such funds, but the related fees might be no more than currently charged by funds that invest in baskets of shares. And since the use of such funds would provide a boost to the P2P/P2B platforms' supplies of money to lend, and thus be beneficial to those platforms, they could decide not to charge any fees at all in an effort to encourage investment. If this sort of option were available, it wouldn't be necessary for me to put all of my PISA in a single P2P/P2B platform, as I could buy units of a number of platforms and achieve a bit of diversification.
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mikes1531
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Post by mikes1531 on Oct 17, 2014 22:33:55 GMT
Think the authors detailled due diligence may be questionable. Some people might say that "journalists' due diligence" is an oxymoron. 
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