Innovative Finance ISAs

eddyinfreehold

Hi all, please bear with me I'm new to all this. My wife and I deal with all our savings and banking absolutely jointly. Our salaries and earnings are paid into the same currant account and all our savings are held in a joint Building Society account. We have no mortgage and our house is in joint names. We have no outstanding loans or debts.
We are attracted to the idea of an IFISA and could put up to 40k into one this year. I assume that HMRC treats my wife and I as separate individuals so we cannot open two joint ISAs, only one each in one name taking all our tax free income allowance for 2017-8 ? We would then declare any further interest on other savings as half each on our separate Income Tax returns? Correct? ...and finally, holding two IFISAs for the 2017-8 tax year we could invest a further 40k in two new ISAs the following year, ie 2018-9? We are aware of the risks associated with IFISAs compared with more cautious investments.

As I say, I'm not experienced in this matter. We have never had much money before, nor debts and have recently paid off our mortgage. We now find ourselves benefitting from inheiritance from the deaths of both our surviving parents.

greatkingrat

You can't hold an ISA in joint names. You can both invest £20k each before April 2018, and then both invest another £20k each in the next tax year.

Alexland

Yup the clue is in the name they are for individuals. However there is nothing stopping you from synchronising the provider, product, investment dates and investment choices so that the accounts mirror each other - thats what we do with our LISAs and it makes it easier to track and remember the terms and conditions. Eventually once some promo deals have expired we will get our S&S ISAs matched too.

I am not an expert on IFISAs but if the money grows in an ISA wrapper you shouldn't need to declare it on your tax return?

Alex.

eddyinfreehold

Thank you both. I guess we had better go and do some homework now as to which of the IFISAs look to balance performance with a track record of security. Any thoughts on personal experience with that would be much appreciated too.

We put a nominal sum into Funding Circle in May to work out the way it runs and any failings it may have. So far it has lived up to expectation and is doing what it says on the tin. We put in, bought, sold everything, then reinvested all, and so far we are still at the predicted after costs return.

Alexland

To be honest I have tried to 'get' P2P several times but I haven't yet seen a way to get a return that matches the risks I am being asked to take. I don't really consider blind faith or it worked last time as good enough logic to invest my money.

For me the risk is magnified as I haven't got a positive view of how a bucket of risky loans could look during the bad periods of a full economic cycle.

It seems that if I want to limit my loans to individuals that I would consider creditworthy the benefits are no better than regular saver accounts.

I would rather take the ups and downs of a global diversified stock market investment as I understand the way companies can generate good returns at low long term risk. Yes there will be volatility but (provided you don't get spooked and sell low or start buying individual stocks) there is a strong probability of capital preservation and long term gain.

Alex

eddyinfreehold

Alexland ... some very good points but I should point out these are investments we are looking at with a return of around 7pc spread across a very wide field. The loans are usually less than £200,000 with many hundreds buying in. Our test investment has our capital spread over 320 individual loans, each assessed and regulated by Funding Circle. 16 of these loans have caused some concern but paid up a day or two late. Only one has defaulted and is liquidating their business with Funding Circle the preferred creditor. With the Government putting money in too it seems this market is becoming mainstream. I do however have regard for your comments and appreciate your opinion of diversified stock which we will also be looking at.

Alexland

My concern is that while the economy has been on quantitative easing life support for the past 10 years there has been little reason for any of your 320 loans to go wrong however given the right economic circumstances then it is possible that the majority of these 320 loans could go wrong.

It reminds me of the CDO packaged low grade american home loans that triggered the 2008 financial crisis. The concept of grouping up debt to reduce risk doesn't work when everyone starts defaulting at once.

eddyinfreehold

Fair enough, I get your point. However, two questions....

How many small businesses operate on an overdraft as distinct from a cheaper PtP loan to operate their cash flow because they are strangled by late paying and usually bigger beasts as customers? The bank has always been the crutch of small business in this matter and the PtP is a cheaper option.

The PtP lenders are very strict about vetting who they lend to and grade each loan on a sliding scale of security against risk. The more secure the loan, the lower the interest rate. This is a thousand miles away from the Bull attitude of the Fanny Mae Freddy Mac approach of 2008 surely, and more a case of choosing between very very cautious small Building Societies and High Street Banks on a scale of exposure?

The UK does not have the track record of loan failure seen in the US, a lot of the borrowing companies inb PtP have decades of trading and are categorised on that basis. It is not buying a spread of equally high risk fly by night can't pay startups is it?

Alexland

Hi

I totally understand that P2P platforms will have some excellent borrowers who I would be happy to lend to in the same way a bank would lend from a savers deposit account. The problem is that the returns are no better than a bank really eg ZOPA core paying a projected 3.7%

And on the other hand I really don't want exposure to borrowers who in the right circumstances might mass default on their loans even if the projected returns are 12%

And then for something that is a balance between low risk borrowers with low return + people who I really don't want to have access to my money the projected returns are about 7% as you say which is about the same as I could get from a long term stocks investment without taking so much capital risk.

If a diversified fund of stocks drop in value it doesn't matter as you just hold onto them but if a P2P return goes negative you've lost your money forever. I guess it will work for some people but I don't think P2P is for me.

Alex

eddyinfreehold

Thanks...

Your last paragraph makes a lot of sense. I guess using a portion of our capital for IF is attractive but to bundle two IFISAs may be unbalanced compared with Funds. Good advice.