Last week, during the Summer Budget 2015, the Chancellor confirmed a third ISA, the ‘Innovative Finance ISA’, which will allow lending through marketplaces such as Funding Circle to be held within an ISA from 6th April 2016. This is fantastic news for investors who will soon be able to lend up to £15,000 per year tax free.
Funding Circle co-founder James Meekings said the “inclusion of peer-to-peer lending within ISAs is a pivotal moment for our industry.”
The change follows HMRC’s consultation earlier this year, and is another sign that lending through marketplaces is becoming a mainstream way for individuals to earn attractive returns on their money. We calculate that if just 3% of ISA money is channelled through Funding Circle, it would create £1.5 billion of new lending to small businesses annually, creating 75,000 new jobs.* This ISA will sit alongside the traditional cash ISA and stocks & shares ISA as a third option.
What does this mean for investors?
This 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 ISA limit across the three types of ISA.
It will also mean that Funding Circle can become an ISA manager. With Funding Circle as an ISA manager, you will be able to own all of your investments yourself, rather than investing through a third party ISA manager. This will give you greater control over your investment and keep you closer to the small businesses you lend to, as well as allowing you to avoid paying additional fees to an intermediary.
When and how do I start using my ISA allowance?
Further information about how the ‘Innovative Finance ISA’ will work in practice will be published later this year, including whether investors will be able to transfer existing investments into the new ISA. We will keep you up to date with any developments on the blog, however our recommendations to the Treasury on how the ISA should work can be found in our Lending ISA blog post.
Will you be taking advantage of the new ISA from April next year? Let us know your thoughts below.
*Independent research by government think tank Nesta 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.