There are now good reasons to take notice—not least because the annual Isa allowance jumped to £20,000 in Aprilby Andy Davis / July 19, 2017 / Leave a comment
Published in August 2017 issue of Prospect Magazine
It has been a long wait for DIY investors but at last the Innovative Finance Isa (IFIsa) is taking root following its official launch in April 2016. This addition to the Isa family allows investors to generate tax-free returns from alternative finance products including peer-to-peer (P2P) loans and “crowd-bonds” sold on crowdfunding websites.
P2P loans and crowd bonds come in various flavours including personal and auto-finance loans, secured and unsecured lending to small businesses, property developers and housebuilders, and funding for renewable energy projects. (This might sound like the debt parcels of the credit crunch, but bear with me.)
The hold-up that hit IFIsas was that the leading P2P websites could not launch them until they had gained full regulatory authorisation from the Financial Conduct Authority, a longer process than some had hoped. Since May, however, two of the three largest P2P websites, Zopa and Funding Circle, have gained authorisation and in June Zopa launched its IFIsa, initially to existing customers. This starts to bring the IFIsa into the mainstream of DIY investing and there are now good reasons to take notice—not least because the annual Isa allowance jumped to £20,000 in April.
These loans and crowd bonds tend to offer net returns between about 4 per cent and well over 10 per cent depending on the risk profile of the borrowers—they’re riskier and less liquid than cash deposits, granted, but their historic performance is also considerably less volatile than shares or bonds. I place them between these two poles in
The opportunity to invest via a tax-free account presents some interesting food for thought. The annual “Barclays Equity Gilt Study” reports that since 1899, UK shares have produced annual returns after inflat…