Peer-to-peer savers will be able to get their 'interest' tax-free from April 2016 using a new Innovative Finance ISA (IFI).
Under the new proposals, which will be voted on later this year, anyone who lends money to other individuals over a peer-to-peer platform (which is effectively the same as saving the money) will be able to do this within an ISA wrapper. See our Peer-to-Peer Lending guide for more on how it works.
This would mean that all interest payments they receive will be tax-free. The limit will still be £15,240, which will rise in line with inflation. You can max out your ISA allowance between a combination of a cash ISA, stocks and shares ISA, and/or peer-to-peer ISA.
Under the current peer-to-peer system, people lend through a platform, but have to declare any interest they get from this lending to HMRC, which will require them to pay tax on it at their marginal rate.
As well as peer-to-peer loans, which have been 'approved' for the IF ISA, the Government will consult over whether debt securities and equity offered via crowd-funding platforms should also be included.
However, with normal UK savings, the Government-backed Financial Services Compensation Scheme promises it'd pay the first £85,000 per person, per financial institution if the institution goes kaput (falling to £75,000 on 1 January 2016).
Peer-to-peer lenders don't have this, even now they're regulated.