Why invest in the new Innovative Finance ISA?
From 6th April, savers have a new account to contemplate: the Innovative Finance ISA (IFISA).
Stocks and shares ISAs and cash ISAs have been around for a few years now. They’re effectively savings accounts with protective wrappers that allow people to save money (up to £15,240) tax free.
With the IFISA, the Government has broadened these saving vehicles to embrace the UK’s rising peer-to-peer (P2P) lending industry, the cutting edge of the alternative finance space. Why might this be an attractive option?
Many savers who already invest in P2P lender platforms have done so because of the much higher interest rates available compared with ordinary savings accounts (4.5 per cent is typical). However, before the IFISA, they still had to pay tax on any interest they earned. Even if it wasn’t very much, P2P investors were still faced with the backache of completing tedious paperwork to send to HMRC.
The IFISA eliminates that paperwork, and is likely to be an attractive option for people who are disheartened by the low rates on cash ISAs or who don’t qualify for the recent Help to Buy ISA. Savings can also be locked away for a number of years.
While only a few P2P platforms have so far been approved for the IFISA, investors interested in the vehicle might do well to wait until others have been approved by the Financial Conduct Authority.
P2P lender Unbolted, for instance, eliminates investor and borrower risk by offering only secured asset loans, collateralised against high-value possessions owned by the borrower, which can be sold at auction in the event of a default.