The UK’s largest P2P lender has opened its Innovative Finance ISA to the masses. After initially opening the wrapper to existing investors in December, Funding Circle will now allow newcomers to the platform to invest in loans to small businesses while enjoying tax-free returns on their investment.
The move is significant in a year that some have tipped as the year in which the Innovative Finance ISA might at last ‘take off’. AltFi research, published earlier this year, found that a wall of public ignorance stood between the wrapper and mainstream adoption – and concluded that the delayed launches of the ‘big three’ P2P platforms’ IFISAs might be holding things up. But with Funding Circle now lowering the drawbridge, as consumer lender Zopa did in January, growth may come in a hurry.
“We’re proud of what more than 79,000 investors have achieved over the last eight years by lending through Funding Circle,” said James Meekings, UK managing director and co-founder of Funding Circle. “On average investors have earned 6.4 per cent per year after fees and bad debt, creating tens of thousands of jobs by supporting businesses all over the UK. We’re excited to now offer tax-free access to this stable and attractive investment option.”
Funding Circle was granted full authorisation in May 2017, paving the way for the launch of its IFISA. The wrapper exempts individual investors from income tax for up to £20,000 each tax year. Approximately £80m has already been invested via Funding Circle’s ISA by existing investors since its managed launch in December of last year.
The platform withdrew its manual bidding process in August 2017, replacing it with two automated investment accounts: Balanced and Conservative. For its IFISA, investors will select one of these two options, offering projected annual returns of 7.2 per cent and 4.8 per cent respectively.
Those investors may then choose to sell loans via the platform’s secondary market, subject to market demand. At present, 98 per cent of loans put up for sale are sold within 24 hours, according to the platform.
Funding Circle’s IFISA is a ‘flexi ISA’, meaning investors may take money out of their account and put it back later in the same tax year without losing their tax-free entitlement. The company has advised that investors will be able to transfer existing ISAs over to Funding Circle later this year.
The minimum investment amount for newcomers to the platform is £1,000. In a release, the company included an illustrative example of the power of compound interest, which shows that £20,000 invested in its Balanced IFISA account for five years at the current projected return of 7.2 per cent per annum could earn an estimated £8,635.77 in interest.
Funding Circle has lent a cumulative total of nearly £3.5bn in the UK to date, according to AltFi Data. By all accounts, it is gearing up for what will be a landmark IPO, believed to be slated for some time this year – although the company is yet to confirm this.