The news is out. As regular visitors to this News site will be aware, Money&Co. is planning to apply for a banking licence.
Nicola Horlick, the fund manager once dubbed the City “Superwoman”, plans to raise around £50m as part of a banking licence application she claims will transform her peer-to-peer lending business into a “digital merchant bank”.
Horlick, who set up Money&Co in 2013, said it was “highly likely” she would start the application process this year after shelving similar plans in 2020.
“If we want to become a big business, the only way is to become a deposit taker. The best thing is to apply for a full UK banking licence,” Horlick told Financial News.
Peer-to-peer lending takes money from retail investors and lends it to individuals and companies. It offers investors higher returns than savings accounts while allowing businesses to take on riskier loans.
However, it tends to generate lower returns for the firm than conventional bank loans, as most of the profits are passed on to those who put the money in the pool.
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.