Peer to peer ISA
With an Innovative Finance ISA savers using peer-to-peer lending platforms benefit from the tax-advantageous nature of ISAs.
Peer to peer lending, also known as P2P lending, is way in which savers can lend money directly to borrowers, getting rid of the middle man and potentially benefiting from a better interest return on their investment.
The new Innovative Finance ISA allows 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. There are a range of different Peer to Peer Lending Platforms that offer Innovative Finance ISAs that allow you to lend to borrowers, so it is wise to shop around and consider which is best for you.
There is a risk with peer to peer back lending that you will get back less than you originally invested and peer-to-peer lending is not currently protected by the Financial Services Compensation Scheme
How the Innovative Finance ISA works
The ISA allows individuals to get tax-free returns on their investments in Financial Conduct Authority regulated and approved P2P lending platforms, which are typically available online, these platforms allow you to invest in various types of borrower seeking various loan types such as; personal loans, business loans and property loans.
The Innovative Finance ISA is its own distinct category of ISA, meaning savers can open other types of ISA as well such as a Cash ISA or Investment ISA; however 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 an Innovative finance ISA you need to be:
- Aged 18 years or over
- A UK resident and tax payer
There is not currently a Junior Innovative Finance ISA plan.