The Tax Incentivised Savings Association has called for the Treasury to press ahead with a proposal to create a new third kind of ISA.
Financial Secretary to the Treasury David Gauke outlined proposals in October to extend ISA eligibility to include peer-to-peer loans, which will allow returns to be entirely tax free. The aim is to increase choice for savers about how they invest.
TISA responded to the Treasury consultation, which ended last week, telling officials
peer-to-peer loans do need a separate ISA type.
The options were for P2P loans to be included in existing stocks and shares ISAs, or put into a new third type of ISA.
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In its response it said: "Peer-to-peer loans should be invested in a separate ISA type. "This will permit appropriate regulation and controls over transferability and liquidity to be controlled in ways that do not impact stocks and shares ISAs and cash. Care should be taken to ensure that the costs to the existing market of complying with the additional reporting and compliance requirements are minimised.
"Many, perhaps most, of the existing market will not, initially at least, offer peer-to-peer loans.
"The impact of amendments to HMRC reporting, to disclosure, and to systems should be minimised. This applies in particular to the introduction of a peer-to-peer ISA.
"The Government should look to amend regulations to permit qualifying loans to be included in collective investment vehicles, whether closed end or open ended.
"This will make such loans more accessible and thus enable retail investors to get exposure to this asset class through existing ISA managers, without forcing existing ISA managers to become peer-to-peer platforms."
Jeffrey Mushens, TISA technical director, said: "We have long sought to have peer-to-peer loans included within the ISA 'family'. We believe that the inclusion of peer-to-peer lending will be very popular with consumers who are already benefiting from the greater flexibility introduced to the ISA regime earlier this year.
"As a nation we need to increase the amount we save and invest and these changes will provide further encouragement."   

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