A Lending ISA
Earlier this year, the Chancellor announced that the government was committed to the inclusion of peer-to-peer lending within ISAs – a huge moment for the industry.
Previous research of ours found that 41% of investors would invest more in marketplaces like Funding Circle if it was included within ISAs, and one in ten people said they would transfer their existing stocks and shares into a ‘Lending ISA’. Additionally, TISA (Tax Incentivised Savings Association) estimates that more than £50 billion is invested in ISAs every year. If just 3% of this money was channelled through marketplaces such as Funding Circle it would create more than £1.5 billion of new lending to businesses annually, leading to approximately 75,000 new jobs.*
Since March we have been working closely with the Treasury and other players in the industry to refine exactly how this would work. Last Friday the consultation came to a close and we wanted to share our topline recommendations.
We have recommended that the government introduce a third ‘Lending ISA’. Currently you can have a cash ISA and a stocks and shares ISA, but lending to businesses is different to depositing money in a savings account (hence the higher return), and is less volatile than investing on the stock market. A third ISA will give investors more flexibility and allow for a higher level of diversification, as you will be able to choose how best to allocate your £15,000 limit across three types of investment depending on your risk appetite.
It will also mean that Funding Circle will become an ISA manager, which would be challenging if wrapped up in a stocks and shares ISA, as we would not be able to offer this type of investment. The benefit of this would be that you will be able to own all of your investments yourself, rather than go through a third party ISA manager. You will also be able to go directly through Funding Circle and invest via your existing account if you wish to.
Finally, we are recommending that investors are able to transfer their existing Funding Circle investments directly into a Funding Circle ‘Lending ISA’. We also hope that those of you who already have ISAs and would like to diversify across a ‘Lending ISA’, will be able to transfer money across from other types.
Having spoken with many of you over the last period, we hope that this is in line with what would work for you. It’s an exciting development and whilst it will take many months to implement, we will continue to update you as and when we have more information.
If you have any questions then please get in touch or join the conversation on the forum.
The Funding Circle team
*Independent research by government think tank Nesta last year found that businesses that receive a loan through Funding Circle employ on average 11 people, and see an average increase in employment of 27 per cent after receiving finance.