The UK government has, quite rightly, been throwing money at the UK economy and its financial sector to ameliorate the drastic effects of the Covid-19 pandemic.
Starling Bank, Virgin Money and TSB are to be the beneficiaries of a £29.6 million underspend by the UK’s Incentives Switching Scheme, which offered sweeteners to SMEs to transfer their business to challenger banks.
The switching scheme was part of a package of measures agreed between the UK Government and the European Commission as a condition of the bail out of Royal Bank of Scotland during the financial crisis.
Run by the Banking Competition Remedies Board, the scheme allocated £275 million to assist SME customers within the Williams & Glynn business to move to challenger banks. This included the £225 dowry for switching business current accounts (BCAs) and an additional £50 million incentive to move loan accounts.
ISS was designed to conclude when either 120,000 BCAs switched or when the dowry of £225m was spent. With the latter target having being met, the BCR has been left holding the loose change from a £29.6 million underspend on the loan dowry.
Historical Performance And IFISA Process Guide
That figure is the result of over £24 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.
So here’s our guide to the process:
The ISA allowance for 2020/21 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We’re assuming a 7 per cent return, net of charges and free of tax here.
Once you have made your initial commitment, you might then consider diversifying – buying a spread of loans. To do this, you can go into the “loans for sale” market. All loans bought in this market also qualify for IFISA tax benefits.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.