Ablrate Innovative Finance ISA & Tax-Free Lending 22/08/2017
Tax-free lending was made possible when the UK Government introduced the Innovative Finance ISA on 6th April 2016. The “IFISA” allows individuals to use some (or all) of their annual ISA investment allowance to lend funds, tax-free, through the growing Peer to Peer lending market.
ISA providers are offering expected returns of between 6-8%. Returns like this are much higher than many traditional banks or building society Cash ISA accounts. However, these two forms of ISA savings are inherently different, and it is important to understand the key differences – particularly the risks associated with peer to peer lending.
How does this differ from other ISAs?
Cash ISAs operated by UK banks and building societies benefit from the protection of up to £85,000 per person as these are covered by the Government’s Financial Services Compensation Scheme. Basically, if the bank or building society were to fail, the saver would remain entitled to receive back their capital.
Conversely, the online lending sector is not governed by the FSCS. There is no guarantee that any amount of the capital that an investor deploys into online lending will be recovered in the event that either the borrower or the platform were to fail or otherwise fall short of their repayment obligations.
Cash ISAs are currently paying relatively low-interest rates. Given inflation, this often results in a negative ‘real’ return to the saver because prices may be rising faster than the Cash ISA is paying interest. Higher target rates of interest are available from online lending platforms, like Ablrate, than from cash savings. Indeed, Ablrate offers targeted returns frequently in excess of 10%, but it is not without risk.
Risks of IFISAs
At Ablrate risk is mitigated by making sure loans are asset-backed, i.e. we seek to secure the loan over a freehold property or other significant asset. These assets could be sold off in the event that the borrower was to default on his or her repayment obligations. However, it would be wrong to assume that the two forms of investing, online lending and cash saving, carry identical risk profiles.
The bottom line is that a lender should really assess his or her own personal circumstances and risk appetite to determine which is the best product for them.
Ablrate IFISA, Tax-Free Lending
Ablrate began offering their IFISA in August 2017 resulting in over 70 IFISAs being opened and over £250,000 deposited within the first 24 hours.
The Ablrate Innovative Finance ISA has been designed specifically for Ablrate Lenders as a flexible IFISA. This means you can withdraw money and re-deposit in the same tax year without affecting your annual allowance.
You can transfer in funds accumulated within another ISA product and we automatically monitor your IFISA so you cannot over-fund it.