REVEALED: How YOU could get bumper returns of 6.1 per cent with new ISA
BRITONS could reap top tax-free returns of up to 6.1 per cent with a new ISA - but it's not without risk.
Peer-to-peer lender Zopa is set to launch an 'innovative finance' ISA from June 15, which for the first time allows investors to shelter returns in the sector from the taxman.
As with other ISAs, people can hold up to £20,000 in the account or mix and match to split the sum between the innovative version as well as cash or stocks and shares.
Peer-to-peer providers offer investors the chance to generate returns far higher than standard savings rates by lending their money to borrowers.
Money is spread across a number of different loans to minimise risk and borrowers are subject to affordability tests.
Customers of the new innovative ISA can hold new Zopa Core products which target a return of 3.9 per cent or Zopa Plus, which targets 6.1 per cent - but money is lent to riskier borrowers.
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However, Zopa is also scrapping a 'Safeguard' fund which is currently used to reimburse customers of Zopa products, with the exception of Zopa Plus, who lose cash in the event of a borrower default.
The provider said tax laws introduced in 2015 that allow investors to claim tax relief on losses now covers the main purpose of its Safeguard fund.
Zopa is the first lender to launch the Innovative ISA since it was launched by the Government last year.
The provider is rolling it out in four phases, and the product will initially only be available to existing customers until August.
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Andrew Lawson, Zopa’s chief product officer, said: “We’re proud of our 12-year track record of prudent lending and have always provided positive returns to our customers.
"Safeguard was introduced in 2013 to deal with a tax anomaly that had led to peer-to-peer lenders being unfairly penalised.
"Since winning our campaign to change the tax rules, we no longer need Safeguard – as customers have proved by flocking to Zopa Plus.
"Now it’s done its job, retiring Safeguard, allows us to provide greater expected returns to our investors, because on average we over-fund Safeguard, whilst making the investor products even easier to understand.
"We’ll continue to maintain Safeguard for the rest of its life, and continue to build on our reputation for world-leading credit risk management.”
Unlike traditional saving accounts, peer-to-peer investments are not protected by the Financial Services Compensation Scheme, which cover up to £85,000 of customer cash if a provider goes out of business.
