The UK government has published in draft form the Individual Savings Account (Amendment No 2) Regulations 2016 introducing a new type of Individual Savings Account (ISA) called the Innovative Finance ISA. Comments on the draft legislation may be submitted before 1 February 2016.

The ISA permits individuals to save money in a tax free account up to a certain specified level of annual contribution. At present the ISA Regulations provide for two types of ISA known as the cash ISA and the stocks and shares ISA. The Regulations specify which investments qualify for each of these accounts but these permitted investments do not include peer to peer loans unless they are included within an investment rust or similar product that could be included within a stocks and shares ISA.

The ISA Regulations also specify the financial institutions that are permitted to offer ISAs and the information that these ISA providers must give to the tax authorities. These regulations also set out rules on the ownership, transfer and withdrawal of ISA investments.

The Innovative Finance ISA will introduce a third type of ISA to be used for tax free saving. Interest and gains from peer to peer loans will be eligible to be included in this new type of ISA without being subject to tax on the income. An ISA investor will be entitled to subscribe new money each year to a maximum of one Innovative Finance ISA, one cash ISA and one stocks and shares ISA. The amount paid into all ISAs held by an individual investor must not exceed the overall ISA subscription limit for the relevant year.