Britain’s ISA system has undergone some major changes over the past few years. As well as a number of new types of ISA (individual savings account) being introduced in a bid to encourage tax-free saving and investing, the rules around moving money between different kinds of ISA have also been relaxed to some extent.
For consumers, what this means is that there is now far greater scope for them to improve the returns they get even on cash they’ve been holding in ISAs for several years.
In the 2018-19 financial year which began on April 6, the annual limit for new deposits into an ISA is £20,000 in total – by way of contrast, it is worth noting that the limit at the start of this decade was just £7,200*.
And there is now a much wider range of ISA options available: as well as cash deposit accounts or stocks-and-shares ISAs, people can put money into Lifetime ISAs, aimed at helping the under-40s save to buy a home or to fund their retirement, as well as Innovative Finance ISAs, which cover new forms of saving such as peer-to-peer lending, to name just two.
But while there is a £20,000-a-year limit on new money saved into an ISA, the system’s transfer rules mean that anyone can move old ISA cash into any other form of ISA with no annual restrictions. This is crucial in allowing consumers to seek out the most generous rates of return on their money.
The main restriction on transfers concerns your destination ISA, and whether the provider allows transfers in – not all of them do. But since the start of 2018, FOLK2FOLK’s Innovative Finance ISA has been among the ISAs on offer that does indeed allow customers to switch their existing ISA holdings.
People who have managed to put aside their money diligently into ISAs since the system was introduced almost two decades ago, could in many cases have amassed ISA funds worth tens if not hundreds of thousands of pounds, depending on the yields or growth rates they have managed to achieve.
But with returns on cash currently below inflation, chances are that a lot of people will be looking for a more profitable home for their capital, this is where peer-to-peer (P2P) lending can provide an alternative solution for taking on additional risk.
FOLK2FOLK’s P2P platform offers Lenders 6.5%pa on their money by matching them to rural businesses across the UK in secured loans from 6 months to 5 years. As with any investment, capital is at risk.
The overall risk faced by Lenders is reduced by FOLK2FOLK’s policy of ensuring every loan is secured against UK property at a maximum 60% loan to value (LTV) on a forced sale basis and by allowing Lenders to diversify across multiple loans (minimum of £20,000 per loan). And by holding the loan in the Innovative Finance ISA wrapper, the interest earned is free of income tax.
Finally, it is worth remembering that to make a successful ISA transfer, it is best to speak to the company you want to transfer to first, so they can assist with the relevant admin of the transfer. If you simply withdraw cash from an existing ISA rather than formally transferring it, that money will lose its ISA wrapper status and be subject to the £20,000 annual limit when you try to reinvest.
For more information about ISA transfers with FOLK2FOLK please visit https://www.folk2folk.com/lend/ifisa/