A new tax year brings with it all its usual thrills and spills for personal finance junkies:
- Replenished annual ISA allowances to lock and load with your favourite asset allocation.
- A reset capital gains tax allowance, to enable another round of helpful defusing for those with unsheltered gains.
- Lowered rates of capital gains tax.
- A new £5,000 dividend tax allowance and a new savings allowance of up to £1,000. (Hurrah!)
- Higher tax rates for unsheltered dividends outside the allowance. (Boo!)
- Higher stamp duty rates for BTL purchasers. (Hurrah or boo, depending in most cases on whether you’re over 45…)
- Slightly higher personal allowances for income, including the long-awaited 0% on the first £11,000.
And that’s just the mainstream stuff. The UK tax code is around 10 million words long, so expect lots of hidden twists and turns.
(And you thought Game of Thrones was a slog…)
What about the Innovative Finance ISA?
Conspicuously stuck on the starting grid however like a Force India with an engine problem is the Innovative Finance ISA.
Back in the March 2014 Budget, the chancellor announced that peer-to-peer lending was to become permitted within ISAs.
By the Summer 2015 Budget this still wasn’t possible, but we now had a name for the vehicle that would eventually make it so – the Innovative Finance ISA.
The relevant Budget text read:
2.77 Extending ISA eligibility
The government will introduce the Innovative Finance ISA, for loans arranged via a P2P platform, from 6 April 2016.
Well, here we are in April 2016, and it’s still not possible to shield income in an ISA with the mainstream peer-to-peer lenders, although a few tiddlers have got their products away.
RateSetter warned customers of delays on April 1st in an email:
There has been a fair amount of press coverage about the “Innovative Finance ISA” launching in the 2016/17 tax year and as you know we are preparing to launch a RateSetter ISA so that you can enjoy the same interest rates and protection you achieve on RateSetter but in a completely tax free wrapper.
It is testament to the government’s enthusiasm for our product that they created this third ISA specifically to accommodate peer-to-peer lending.
Before a peer-to-peer platform can offer its own ISA, it must first become fully authorised by the Financial Conduct Authority (FCA) and also it needs to comply with rules set out by HMRC.
As you may know, RateSetter, as well as other peer to peer platforms, are in advanced stages of obtaining full authorisation – we cannot confirm a date yet but can confirm that it is progressing well.
A few days later I heard the same thing from Zopa:
In September 2015, we submitted our application for full authorisation to the FCA and have been working closely with them to progress our application. We will only be able to offer the Innovative Finance ISA after we have gained full authorisation.
Given the volume of P2P platforms requesting authorisation and a number of recent legislation changes, the majority of P2P platforms, including Zopa, will not complete the process before April 6th.
We are working with the FCA to be fully approved and ready to launch ISAs in the next few months. We’ll let you know as soon as we have further news around the date of our ISA launch.
Subsequent press reporting does indeed suggest that none of the major peer-to-peer lenders has yet been given the go-ahead.
According to ThisIsMoney, as of April 1st there were 86 firms still awaiting authorisation. Eight had received authorisation, of which four had revealed the details of their products:
Abundance, which specialises in renewable and ethical peer-to-peer loans for social and environmental projects, will provide a wrapper that lenders can put new investments into. They will at first receive 2 per cent for six months in a holding account until October when money can then be invested and could earn between 6 per cent and 9 per cent depending on the projects backed.
Crowd2Fund lets businesses seek equity, loans or issue bonds of between £10,000 and £1million, offering investors average returns of 8.7 per cent.
Crowdstacker, which handpicks small businesses looking for finance, will also offer a wrapper-style product. It offers lenders rates up to 6.8 per cent.
Funding Tree helps provide loans of between £10,000 and £1million. It hasn’t given an indication of the rate or type of product it will offer but previous loans have offered rates up to 17 per cent.
I can’t help noticing an alphabetical gist to the firms that have won approval. It seems crazy to speculate that the FCA is still working through their list alphabetically, but, well, on this (tongue in cheek) evidence I wouldn’t hold my breath if you’re waiting on Zopa…
Quite a few readers have asked for an article about Innovative Finance ISAs, and I know some were waiting on the vehicles before dipping a toe in the P2P water.
But given how this government seems to hold its focus group tests in public – only to alter or even reverse policy later – I’m going to hold off on saying more about Innovative Finance ISAs until they are fully out there in the wild.
True, from the emails above it seems pretty clear these new ISAs are coming – it appears to be just a matter of getting the paperwork done.
But I do wonder if there are any last minute hitches that might also be behind the delays. Let’s wait and see.
Stop or go?
The good news is that even after taking tax into account, the rates on offer at the likes of Zopa and RateSetter are much higher than you’ll get on cash – as of course you should demand, because the risks are much greater (and different) than with cash, too.
(Read my recent RateSetter article for a primer).
In particular, if you’ve already decided the risk/reward ratio is right for you, then I wouldn’t hang around waiting for the Innovative Finance ISA before picking up the £100 bonus that RateSetter is currently offering new customers1 – because who knows how long that bonus will last for, or how long the wait for the Innovative Finance ISA could be.
At least the new savings allowance should help shield your peer-to-peer income, depending on how much you’ve got saved in cash and other interest-paying assets outside of existing ISAs.
Beyond that it’s a case of watch this space.
- With a bonus paid to me, too, by the companies not by you, if you follow these links. [↩]