P2P Guide

27 26 INNOVATIVE FINANCE ISA SUITABILITY, DUE DILIGENCE & FURTHER CONSIDERATIONS Advisers and most investors will be familiar with the Individual Saving Accounts, the UK’s most popular savings and investment tax wrapper. However, there are four unique features of the new Innovative Finance ISA (IFISA): Lenders are only able to access one platform per IFISA, although aggregator platforms are also acceptable and present a way around this restriction. Investors and their advisers should also beware that in a given tax year, withdrawing money from an IFISA opened that year and reinvesting in another platform would reduce one’s annual ISA allowance by that amount. However, any interest gained from the former platform would still be free from tax. In-specie P2P investment transfers are not accepted into an IFISA wrapper, so it means selling the investment but buying it back within the wrapper is subject to conditions. However, it is possible to switch money in pre-existing ISAs into an IFISA. Innovative Finance ISA Dash from Cash Every year, the vast majority of new ISA subscriptions are for cash ISAs (typically 3/4 of all new ISA subscriptions), driven by investors’ aversion to stock market volatility. The total of ISA subscriptions in 2016/17 was £396bn. However, cash ISAs expose investors to the risk of the purchasing power of their savings being wiped out by inflation: interest rates have been so low for so long that the returns on cash ISAs are tiny. People are waking up to this and last years’s new ISA subscriptions fell by £18bn compared to the previous year. The inference is that savers are ditching low-paying cash ISAs, which is bad news for those seeking tax-free returns. Use of an IFISA wrapper also means that the income for P2P investments won’t impact a clients’ personal saving allowance, which can be used to ensure other sources of income are also tax efficient. PLATFORM UNDERLYING LOANS CUMULATIVE TOTAL LENT* MINIMUM INVESTMENT SECONDARY MARKET ESTIMATED DEFAULT RATE** Octopus Choice P2P property lending £175.41m £10 Yes 0% Funding Circle P2P business lending £3.3bn £1,000 No 0% Ratesetter P2P consumer lending P2P business lending P2P property lending £2.36bn £10 Yes 0% Zopa P2P consumer lending £3.07bn £1,000 Yes 4.52% Lending Works P2P consumer lending £93.7m £10 Yes 4.3% Assetz Capital P2P business lending P2P property lending £434.8m £1 Yes 0.28% Proplend P2P property lending £100m £1,000 Yes 0%-3% Lending Crowd P2P business lending £27.6m £20 Yes 1.49% ThinCats P2P business lending £274.6m £1,000 Yes 2% Archover P2P business lending £60.4m £1,000 No For more information about the P2P providers and the products available, in:review publishes reviews and market metrics: in-review.com SOURCE: IN:REVIEW AND IP RESEARCH *Figures sourced 1 March 2018 **Figures sourced 7 March 2018 expected inflows 2017/18 Up to £1bn CPI VS. CASH ISA RATES (2017) 2.5% CPI 0.9% Cash ISA (ANNUAL AVERAGE 2017 ONS & BOE) Main P2P Platforms a starting point