Britain’s ISA system has undergone some major changes over the past five years. As well as a new type 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 were also relaxed to some extent.
For consumers, this provides greater scope to improve the returns they get even on cash they have been holding in ISAs for several years.
In the 2020/21 financial year, the annual limit for new deposits into an ISA was £20,000 in total and that limit remains for the 2021/22 tax year. By way of contrast, that’s almost double the allowance of a decade ago; in the 2011/12 tax year the annual allowance for Individual Savings Accounts was £10,680.
Now there is 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 and Innovative Finance ISAs, which allow investment into secured business loans via a Marketplace lending platform (MPL) or a Peer to Peer (P2P) lender.
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 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 Marketplace lending can provide an alternative solution.
FOLK2FOLK’s Marketplace lending platform enables Investors to earn 6.5% p.a. on their money tax free, by offering investment opportunities in the form of secured business loans. As with any investment, capital is at risk.
The overall risk faced by Investors is reduced by FOLK2FOLK’s approach of ensuring every loan is secured against UK property at a maximum 60% loan to value (LTV) and by allowing Investors to diversify across multiple loans (minimum of £20,000 per loan). By holding the loan in the Innovative Finance ISA wrapper, the interest earnt 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.
Perhaps now is the time to consider transferring your ISA to a better deal? Around 65% of FOLK2FOLK’s ISA funds have been transferred to us from other ISA providers.