Share Innovative Finance ISA

What is it?

This is a little bit of a left-field option. As the banks have decided to lend only to a very select bunch of people and companies, other lenders have moved in. Also it won’t have escaped you that interest rates are currently rubbish. So again, newcomers have come up with ways to offer higher headline rates.

These are peer to peer (P2P) lenders such as Lending Works, Zopa and Crowdstacker. They bypass the banks – and enable us to lend directly to smaller businesses and other individuals. Investors receive a higher rate of interest – it can be up to 6-7% – in return for lending money, but do take the risk that they might not get it back if that new ice cream company or bike manufacturer goes belly up.

These are super new. Zopa’s ISA is coming in the 2017/2018 tax year, for example, and not available yet. Ditto Lending Works.

How much can you put in every year?

You can put in the full £20,000 (17/18 tax year) as long as you’re not putting money into one of the other ISA types.

Where can you invest?

These are specifically designed to hold peer to peer loans to businesses and consumers and some other ‘new finance’ options. It is limited to lending money to these groups, rather than taking an equity stake, or buying a chunk of the business a la Dragons’ Den.

Zopa, for example, will have 3 ISA options – Access, Classic and Plus. Returns are projected to be 3.1%, 3.9% and 6.3%. For the full annual whack of £20,000, you might get back nearly a grand in the Plus option. Tax-free.

Crowdstacker says you can earn between 5% and 7%.

Maybe we’re unnecessarily miserable and old-fashioned about these. Since 2009, Zopa’s defaults have been under 2% according to their website. That’s pretty good risk management. It just feels a little bit iffy to us…..but maybe they will all have the last laugh and we’ll be left looking like overly-cautious progress-phobes.

What are the benefits?

They have all the benefits of a normal ISA in that any growth or income in the underlying investments is tax-free. The income on peer to peer loans tends to be higher than that available on other investments – at 6-7% – though the risk of not getting paid is higher.

Who might it suit?

Those who accept they are doing something a bit new and a bit risky.

Where can you get one?

Part of the problem with innovative finance ISAs is that not many are available yet. Only a handful of providers are set up to offer them. These are the specialist peer to peer lenders, such as Crowdstacker and Zopa, rather than the mainstream investment platforms or the banks.

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Important stuff!

Holly and the team have worked in the finance industry for many years but we are not regulated to give you personal financial advice, nor are we regulated by the industry watchdog (although we do talk to them a lot). For every story on this site about a good investment, or something which went up by 10% or made someone £200, we could share a story about a bad investment, something which fell by 10% or lost someone £200. Nothing’s certain when investing so if you’re really unsure, or dealing with complicated stuff like working out what to do with a pension when you retire, we’d really suggest you get some financial advice. Here are some tips on  how to pick a good financial adviser. Or check out Unbiased or VouchedFor. Just remember, commission has been banned now so advisers need to be very clear with you about what you are paying them and when.