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Government tipped to allow crowdfunding investments into ISAs

Bruce Davis, one of the founders of peer-to-peer lender Zopa, hopes chancellor George Osborne will make an announcement about crowdfunding in the Autumn Statement.

 
Government tipped to allow crowdfunding investments into ISAs

The government has already opened up ISAs to AIM shares but it is now under pressure to cast the net even wider to allow crowdfunding investments to be held inside the tax efficient wrapper.

Bruce Davis, one of the founders of peer-to-peer lender Zopa and now managing director of Abundance Generation, which allows individuals to buy renewable energy bonds for as little as £5 through its crowdfunding platform, is lobbying the government to allow crowdfunding investments to be held in ISAs.

Until now, the argument against allowing crowdfunding investments – whether that be buying shares in a company or buying the debt issued by a company – has been that the companies that use crowdfunding platforms are not listed.

However, Davis said the decision to allow unlisted AIM shares to be held in ISAs, a decision that the government announced in July, has made the possibility of including crowdfunding investments more realistic.

Davis hopes chancellor George Osborne will make an announcement in the Autumn Statement next week about crowdfunding.

‘There is an appetite from the Treasury to support it,’ said Davis. ‘[A lack of] liquidity was their argument against [allowing crowdfunding investments in ISAs] but that is no longer an issue [as AIM shares are allowed in] and AIM shares are typically illiquid.

‘We are at conversation stage with the Treasury and [an announcement] may be given in the Autumn Statement or the Budget [next year]. We are hopeful to hear something in the Autumn Statement and there is no reason why they should not [allow it].’

Davis said allowing crowdfunding investments into ISAs would be particularly beneficial for renewable energy projects which have up until now benefited from tax breaks when invested in via venture capital trusts (VCTs) and enterprise investment schemes (EISs), a decision he feels has not benefitted the sector.

‘EIS and VCT money follows the tax breaks and [renewable energy] got drunk on disloyal money and that didn’t help the sector,’ said Davis.

‘ISA money…would be more long term.’

Crowdfunding is currently under scrutiny from the financial regulator, the Financial Conduct Authority (FCA), which takes over the regulation of the sector next April.

The regulator is concerned that individuals are attracted to the high interest rates offered through crowdfunding sites but do not understand the risks associated with investment. It wants to ensure that only sophisticated investors put money into equity investment crowdfunding or that less sophisticated investors put a maximum of 10% of their savings into companies offering shares for cash on crowdfunding platforms.

The FCA has said it wants to ensure crowdfunding and peer-to-peer lending is better regulated in order to boost the market and 'ensure firms and individuals continue to have access to this innovative source of funding'. It has, however, been criticised for applying a one-size-fits-all approach to crowdfunding which has multiple business models running under the banner.

2 comments so far. Why not have your say?

The ssinnic

Nov 25, 2013 at 17:46

What's crowdfunding? Do they pass a hat round at half time ?

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P L

Nov 25, 2013 at 22:46

In essence most lending is ultimately crowd funded. One or more individuals pool their cash and invest in either equity or debt. The difference is that the middleman eg the bank is being taken out of the process and replaced by a market place that allows lenders and borrows to effectively deal directly with each other and in theory only then pay for access to the market.

So no paying for boardroom salaries or share holders or a branch network etc etc. BUT equally no 85K compensation scheme. The protection is purely provided by getting the borrowers risk assessment correct, the performance of the debt collection process and any setting aside of borrower/lender fees (ie a market place compensation scheme but without the all encompassing guarantee).

Basically banking taken back to its basics where the lender is exposed to the risk rather than having the false situation which pretends there is none.

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