The 6th April 2016 heralds a new era in establishing Peer to Peer lending. Not only does it signify a change in perception from government and big institutions that Peer to Peer is here to stay, it also means that consumers will start to see increasing benefits to themselves as investors.
Currently there are two main types of ISA:
- Cash ISAs
- Stocks & Shares ISAs
Cash ISAs are better known due to their availability from your high street bank whereas Stocks & Shares ISAs, which can provide higher returns than the former, are available for the person willing to explore their investment options a little further.
On 6th April 2016, the Innovative Finance ISA will be launched. Only companies which have received full authorisation through the FCA will be able to sell the Innovative Finance ISA (IFISA).
What does this mean for consumers?
Consumers who choose to invest in Peer to Peer lending through an Innovative Finance ISA will be able to invest up to £15,240 as part of your total ISA allowance and earn the interest completely tax-free.
Currently when investing through a Peer to Peer platform you have to declare your tax to the tax man, as it is paid to the consumer gross, with no deductions.
Is it risky?
Peer to Peer investments involve risk to your money. It’s a new industry, borrowers could default and it is not covered by the FSCS, but to compensate for this added risk, there are suitably high returns on your investment. How many Cash ISAs offer above 3% in 2016?
Peer to Peer lending platforms seek to mitigate risk in various ways but, at Wellesley & Co, our Auto-Matching tool as just one part of the risk management process we adopt.
The recognition of Peer to Peer lending by the government means that the industry has become a significant player in creating new ways of investing.
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