Peer-to-peer (P2P) lending can be a lucrative activity. The average yield achieved by our registered lenders over more than five years of loan facilitation on this platform is more than 8 per cent, before we deduct our one per cent charge. That return has handsomely outperformed retail price inflation, which has averaged around two per cent over this time.
Is this type of risk worth taking? That’s a call for lenders and their advisers. It does seem though that a tiny hike in retail savings rates is attracting money to Cash ISAs. We believe these vehicles, with sub-inflation returns, represent poor value. Nevertheless, many disagree. See the report below from the Daily Mail.
This lets basic-rate taxpayers earn their first £1,000 interest in ordinary savings accounts without paying tax. For higher rate payers, the amount is £500, but additional rate payers get nothing.
It meant few savers had the need for a cash Isa because rates were so low. You could have £100,000 in a taxable account paying 1 per cent without breaching your personal savings allowance as a basic-rate taxpayer.
Now that rates are slightly higher, a larger number of savers could end up paying tax unless they choose a cash Isa.
At 1.5 per cent, they’ll overshoot the allowance with £67,000 in an ordinary savings account.
Loan Latest And IFISA Process Guide
That figure is the result of over £17 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 2019/20 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.