The ISA is probably the best financial handout you’ll receive from the government—here's what you should do with itby Stuart Law / February 19, 2018 / Leave a comment
The Individual Savings Account (ISA) has come a long way since Gordon Brown introduced it in 1999. It was a successor to Personal Equity Plans (PEPs)—which had been created in the 80s to promote equity ownership amongst the public—and was designed to make tax-free saving simple.
An ISA itself isn’t an investment, but instead is a wrapper which sits around your cash and ensures any returns you make are tax-free. We’ve seen ISA limits grow significantly over the years, from £7,000 to £20,000 per annum today, and it has become a key part of most personal investment strategies. It’s probably the best financial handout you’ll receive from the government.
The ISA landscape remained relatively unchanged for many years. There has always been the option of simple Cash ISAs—offered predominantly by banks and building societies—and Stocks and Shares ISAs, for the savvier investor that is familiar with the stock market. Other variations have been added too, like the more recent Lifetime ISA and Help To Buy ISA.
But in 2015, George Osborne announced the biggest shake-up to the ISA to date by introducing the Innovative Finance ISA (IFISA). This allowed investors to earn tax-free returns on peer-to-peer lending.
Although the industry has been around for over 10 years, and is regulated by the Financial Conduct Authority, peer-to-peer lending isn’t yet mainstream. It is only expected to lend around £8bn in 2018, around a tenth of the scale of cash that goes into ISAs each year. However, its potential as a different type of investment—designed to suit the modern world and provide asset class diversification for investors—is massive.
Peer-to-peer lenders help people to lend money directly to businesses or other people and look after the management of those loans. This cuts out the banks and typically offers investors a fairer rate of return on the money invested. However, like all investments, it does carry a degree of risk to your capital, in this case if a borrower is unable to repay their loan. One approach to managing that risk is to lend across a wide range of borrowers, and automate this lending where possible.
There is a range of potential interest rates available depending on your risk appetite. Assetz Capital is one of the few peer-to-peer lenders that still offers both automated investment accounts (where your investment is automatically diversified across multiple loans in order to spread the risk)…