P2P IFISA Loans Yielding 8% – Assess Risk Before Investing

The end of the tax year is upon us, and it’s surely time to look at using your £20,000 annual Individual Savings Account (ISA) allowance, if you haven’t done so already.

You may decide to enjoy the tax-free benefits of a peer-to-peer (P2P) loan by holding it in an Innovative Finance ISA. There’s no profit without risk, of course. See the numerous risk warnings on this site’s Hime page and in FAQs, and at the foot of this article. Our lenders are a prudent lot, and we like to think that they understand the risk that comes with with the eight per cent-plus average return achieved in the nearly five years of loan facilitation so far.

Our friends at P2P Finance News offer a good take on the factors to weigh in the balance before investing.

PEER-TO-PEER LENDING is already well known for helping investors beat paltry savings rates and now it even has its own tax wrapper in the form of the Innovative Finance ISA (IFISA).

Most people understand how cash and stocks and shares ISAs work but as the IFISA is relatively new there is still some confusion over how the product works and how to attract customers.

So how does the IFISA work in practice and what do platforms and investors have to look out for?

Like other types of ISAs, the IFISA allows individuals to earn up to £20,000 tax free.

Most P2P lenders offer IFISAs alongside their mainstream product range but there are also providers such as Goji, and soon Orca, which let investors back loans from a range of platforms within one tax wrapper.

The IFISA is one the P2P sector’s biggest marketing tools as it can leverage mainstream awareness of the ISA family to highlight the inflation-beating returns on offer, now with the added benefit of tax-free earnings.

“The IFISA market is changing, potentially giving investors a great deal of flexibility,” says Ansar Mahmood, founder of IFISA provider Fluid Bond.

“Two of the most common factors for investors choosing a new product are return on investment, and the confidence they have in the underlying investment and IFISA provider.”

Jonathan Segal, head of fintech at law firm Fox Williams, says due diligence is important to understand what the underlying asset is and the team behind it.

Money&Co. has facilitated just under £15 million in P2P loans since 2014. As we write, the latest loan offering is set to follow shortly.

A Process Guide To Innovative Finance ISA Investment

Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). That figure is the result of almost £15 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:

  • Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
  • Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
  • Step 3: Buy loans in the loan market. Once you’ve put cash in your account it will sit there – and it won’t earn interest until you’ve bought a piece of a loan. It’s this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans – all loans on the Money&Co. site can be held in an IFISA – and your money will start earning tax-free interest.

The ISA allowance for 2018/19 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.


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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.