Peer to peer lending (P2P) is a way in which savers can lend their capital to the borrowers; by doing this they are effectively removing the middle man (a bank) as well as potentially receiving a higher return on their investment.
Typically, the interest offered with P2P lending is higher than those found in the high street. Some companies that offer P2P lending and borrower services provide the choice to lend for a single year or a number of years; the longer the term of lending, the higher the potential return.
It should be noted that the return of the capital that you invested will depend heavily on the borrower, and, in some cases, it is possible to lose some or all of the capital initially provided.
Any returns that you receive on a regular investment will be subject to tax, which could significantly reduce your overall return.
An ISA gives you the chance to earn up to £20,000 tax-free interest, which means it could lend itself perfectly to an investment such as peer to peer lending.
Peer to peer lending ISAs allow savers to put their peer to peer investments in a tax-efficient wrapper so they can achieve tax-free returns on the interest earned from their investment.
Peer to peer lending ISAs are their own type of ISA. Therefore, savers can subscribe to another kind of ISA as well. However, if you decide to open multiple ISAs, it is important to remember to break up your allowance between the accounts so you do not exceed it.
In order to be eligible for a peer to peer lending ISA you need to be:
Unless you have a deep understanding of the financial services market, you may need some assistance when choosing a peer to peer lending ISA.
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This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.
Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
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15th March 2021
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