As we indicated last week in this News section, a series of new loans are in the pipeline ahead of the end of the tax year. The April deadline sees the expiry of the £20,000 Individual Savings Account limit for the year.
Remarkably, some of our lenders have money sitting on their accounts without allocating it to a loan. That capital only produces income for lenders when it is put to work in providing the credit that our carefully vetted borrowing companies seek. In short, spare cash is money that needs to be better managed.
For larger lenders, a managed service is available. Money management is a whole sub-sector of financial services dedicated to getting the best value for capital invested. All the while, the money managers have to use their best efforts to keep investors’ capital safe. The universal, financial truth asserts itself again: there is no profit without risk.
All investment managers are overseen by the Financial Conduct Authority (FCA), which interests itself specifically in the safeguarding aspects of the process – transparency, clarity of process, demarcation of funds, etc. The FCA also gives permissions to certain peer-to-peer (P2P) platforms to offer loans and wrap them into the tax-efficient device of an Individual Savings Account (ISA). Money&Co. was amongst the first P2P lending platforms to get such a permission.
Money&Co. has fund-management authorisation from the FCA. This means our lenders don’t necessarily have to “do it themselves”. With most P2P platforms, lenders come to the site and select the pre-vetted loans. Then they make their own choice, and lend.
At Money&Co., we offer the option for lenders with £100,000 or more to lend via a managed portfolio service. This is no DIY product – we take the capital and spread it across our loan book, diversifying to mitigate risk (remember: capital loaned is by definition at risk – no matter how carefully we vet the borrowing companies).
There’s a video that explains the portfolio service on site. We run a testimony, repeated here, from a satisfied lender, Edward, a lawyer: “The Money&Co. Portfolio Service allows me to lend my money with ease. The experienced team manages everything whilst giving me total access and visibility through my account.”
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.