The total amount held in Cash Individual Savings Accounts (ISAs) is north of £280 billion – and , after a minor exodus to P2P assets – is climbing again. At Money&Co., we’d be delighted to see investors commit ten per cent of their cash portfolio to P2P.
Of course, P2P loans, even if they are as carefully vetted as our own (annualised bad debt rate 0.04 per cent- see below), carry risk. As such, we’d be delighted to see P2P as the high-yield end of an equity portfolio.
See our earlier commentaries on the desirability of having an element of P2P debt as part of an investment portfolio with a strong equity component.
As for cash, our view is that investors are very poorly served by the low rates on offer – see numerous pieces on the Great Savings Robbery.
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.