The innovative finance Isa (individual savings account) market has finally started to expand as two major lenders launch their first tax-free products.
LendingCrowd and Lending Works are the newest peer-to-peer firms to offer innovative finance Isas.
These products allow borrowers to lend directly to individuals and small businesses up to the yearly Isa limit - £15,240 in the 2016/17 tax year.
LendingCrowd has a 6% target rate of return each year while Lending Works targets a yield of between 4% and 4.5%. Any returns made on these investments are tax free.
Stuart Lunn, CEO and co-founder of LendingCrowd, says: “We’re excited about launching the innovative finance Isa this week and see a massive opportunity for direct investors and the intermediary market to access the underlying asset class through a tax-efficient wrapper.”
However, would-be investors must remember that, unlike cash Isas, any funds invested are not covered by the Financial Services Compensation Scheme.
And, as with any investments, the value can go down as well as up – so you could lose what you’ve lent.
The history of innovative finance Isas
It has been a sluggish start for the innovative finance Isa until this point. Despite being launched in April 2016 only a handful of providers currently offer products.
These are typically smaller players such as Abundance, Crowd2Fund, and Crowdstacker.
Major brands Funding Circle, Ratesetter and Zopa are all still awaiting approval from regulator the Financial Conduct Authority before they can offer their own Isas.