The Innovative Finance Isa
Peer-to-peer (P2P) lending is an area of investment that has grown rapidly in recent years. Rather than borrow money from a bank, consumers and businesses use an online marketplace to borrow money from other individuals or institutions. The interest rates on offer are often appealing (although your capital is at risk if the borrower defaults on the loan), but the appeal has been dented somewhat for most investors by having to pay tax.
The Innovative Finance Isa allows investors to hold P2P loans in an Isa, and therefore avoid paying tax on any income (or capital gains) generated. It’s taken a while for the platforms to get fully regulated and get to a point where they’re ready to launch, but some are available on the market now. We’ll be looking at these in more detail, and highlighting the best options, in the MoneyWeek Isa supplement.
My main point would be to remember always that these are loans rather than bank deposits, and so you can’t afford to look at the interest rate alone – you have to consider default risk and what sort of safeguards the platforms have in place.
The Help-to-Buy Isa
This was an attempt to subsidise struggling first-time buyers using taxpayers’ money. It’s being phased out in favour of the Lifetime Isa (see below).
The Lifetime Isa (Lisa)
We’ll be looking into the Lifetime Isa more tomorrow, but in brief, it’s available from 6 April and it’s being pitched as a more flexible alternative to a pension for the under-40s. You can save up to £4,000 a year into a Lisa, and the government will top it up with 25% (ie £1,000, if you save the whole lot).
You can access the money without penalty to buy your first house (up to £450,000), or once you’re over 60. But if you want it back before then, you’ll have to pay a 25% charge – so all of the government bonus, plus a bit more. Also, you can only save into it until you turn 50.
Will it replace the pension? Or is it yet another way to subsidise the already unhinged British housing market? And which providers will be offering them? We’ll take a look at these questions tomorrow.
PS We’re putting together our Isa special for MoneyWeek magazine right now. There are some great tips on how to make the most of all the different types of Isa, including specific investment ideas on funds to buy for this Isa season. Don’t miss it and you could be a lot better off this time next year.