Steve Cooper
Osborne’s Summer 2015 Budget saw the announcement of the Innovative Finance ISA (IFISA) to a raucous applause from P2P lenders across the UK. Launching in April 2016, this will allow those who use Peer 2 Peer lending as a form of investment to enjoy tax-free interest up to the limit of their ISA; £15,240 (1). Coupled with the proposed ISA limit increase from £15,240 to £20,000 planned for 2017 (9), this marks a significant boost for alternative finance which is now receiving main stream support.
P2P has inherent risk, as do all investments, however P2P investments are often secured against businesses that cannot secure funding (at a certain price) anywhere else, and hence are looking for alternative sources of backing (2). Unless the firm has assets there is little-to- no security for P2P lenders, indeed many P2P investors have their own horror stories. Justin Moray, founder of Candid Money reports:
“There’s a real danger that people are at risk of getting horribly carried away by peer-to- peer” going on to say, “With projected rates so high, you have to accept you’re potentially taking on an awful lot of risk” (3).
So why is this relevant for Property Crowdfunding?
Property Crowdfunding is equity investment rather than lending (4) and therefore has not been included in the Innovative Finance ISA to start with however, a report from SMF (the Social Market Foundation) (5) makes the recommendation that it should be. The report argues that the reason Property Crowdfunding was not included is due to its misrepresentation as a high-risk equity product. Enabling Crowdfunding investors to wrap their investment in IFISA may encourage consumers to explore a new method of property ownership.
Property Crowdfunding is seen as the “little brother” of Peer 2 Peer lending at present, worth circa £85million per year in the UK, however, according to the SMF report, Property Crowdfunding is already valued at up $2.5bn per year in the US (6).
Inclusion in the Innovative Finance ISA could be a significant win for Property Crowdfunders although, as yet there have been no moves by the UK Government to do so. HM Treasury has confirmed that bonds and fixed interest securities would be included in the Innovative Finance ISA (7), which encourages us to believe that the criteria to be included in IFISA is fluid and will continue to develop, a sentiment echoed by The UK Crowdfunding Association;
“Much of equity based crowdfunding is still for early stage businesses that are SEIS or EIS eligible, so they already have a strong tax incentive. However [the] Treasury have confirmed that the door is still open for equity crowdfunding being included in the future as the profile of the businesses raising money continues to mature”(8).
Risk Warning and Legals
Property Moose does not provide any advice in relation to investments and you must rely on your own due diligence before investing. Please remember that property prices can go down as well as up and that all figures, rates and yields are projections only and should not be relied on. If in doubt, please seek the advice of a financial adviser. Your capital is at risk if you invest. This post has been approved as a financial promotion by Resolution Compliance Limited.
Property Moose is a trading name of Crowd Fin Limited which is an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority (no: 574048).
References
1. https://www.lendingworks.co.uk/peer-to- peer-lending/innovative- finance-isa
2. http://www.thisismoney.co.uk/money/saving/article-3262573/Hidden- dangers-peer-peer-lending- Sick-pathetic- rates-Fed- big-banks- Watch-high- tech-firms- money.html
3. Found in: http://www.thisismoney.co.uk/money/saving/article-3262573/Hidden- dangers-peer-peer- lending-Sick- pathetic-rates- Fed-big- banks-Watch- high-tech- firms- money.html
4. http://www.telegraph.co.uk/sponsored/finance/property-crowdfunding/
5. Evans, K., Keohane, N. (2016). Property Crowdfunding: Understanding the benefits of the UK housing market. Social Media Foundation: London.
6. http://www.forbes.com/sites/vanessagrout/2015/03/24/with-2- 5-billion- in-investments-predicted-for- 2015-real- estate-crowdfunding- is-open- for-business/#66c4fb86737d
7. https://www.gov.uk/government/consultations/isa-qualifying- investments-consultation-on-whether- to-include- investment-based- crowdfunding/isa-qualifying- investments-consultation-on- whether-to- include-investment- based-crowdfunding
8. http://www.ukcfa.org.uk/innovative-finance- isa-will- include-transferable- debt-based-securities-from- the-autumn- this-year/news
9. http://www.moneysavingexpert.com/news/savings/2016/03/budget-2016- cash-isa-allowance-up- to-20000- in-2017
