In this brief guide, we are going to be discussing the Lending works ISA.

In this post, we are going to introduce you to the world of the Lending works ISAs, their best use case and all you need to know about the specific ISAs.e.g which one can help you get on the property ladder or help you save for retirement.

What is the Lending works ISA?

The  Lending works ISA(Individual savings account) is a tax-effective way to save. ISAs allow you to pay no tax or the minimum tax on the interest you make on your savings.

To be eligible for an ISA you will usually have to be:

  • You must be at least 16 years old
  • You must be a UK resident
  • And you must have not subscribed to another UK ISA in the same category in the same tax year

So, you are probably wondering what does “subscribing to an ISA” mean. Subscribing to an ISA means paying into and opening an ISA. You are allowed to subscribe to one of each type of ISA every tax year and you must not exceed your ISA allowance each tax year.

How Many ISAs Can I have?💶🙌🏻

The current tax rules allow you to have or open one of each type of ISA every year but you can only put the maximum tax year ISA allowance in all of these ISAs. This means your combined savings in all your ISA accounts must not exceed your current tax year ISA allowance for the current year. The tax year ISA allowance is currently £20,000.

Can I open a cash ISA AND A LISA in the same year?

Yes, you can open a cash ISA and a LISA in the same year. You can also contribute to a cash ISA and LISA in the same year as long as you don’t go over your personal ISA allowance. You can out whatever you have left in other ISA accounts in the same tax year.

How many Lending works ISAs can you open in one year?🔔❄

You can have multiple Lending works ISAs but not more than one of the same( e.g you can’t have two Lending works cash ISAs)   and your total Tax year ISA allowance must not be exceeded in your combined ISA contributions. This means ISAs you hold with Lending works and ISAs you hold with other providers. Each ISA may also have its maximum contribution limit as well. So check the terms.

What to do if you open more than one type of Lending works ISA?😮ℹ

Although it is very unlikely, if you mistakenly open more than one lifetime or stocks & shares ISA in a single tax year, you should notify your Lending works ISA manager at the earliest opportunity. In some cases, the ISA may be allowed to remain open, once you have consulted with HM Revenue and Customs.

The rules for stocks and shares ISAs are the same as with cash ISAs. You can only pay into one each tax year but can open a new ISA with a different platform each year if you wish to. This means you may be able to further diversify by having one type of Lending works ISA and opening the same type of ISA with a different provider in the next tax year. Contribution rules will still apply.

If you have multiple stocks and shares Isas open, you are only allowed to pay into one of them in each tax year. So, if you only wanted to invest a portion of your Isa allowance via the second Isa provider, this could be difficult as it will mean you are not able to add any new money to the original Isa in the same tax year.

The only other option to consider is transferring your existing portfolio to the other provider, although this might incur some costs.

How do ISA transfers work?🌟✈

ISAs are tax-free saving wrappers and moving them to get a better deal is common. If you move your ISA in the wrong way you could just end up losing your tax-free status and costing you interest made from your ISA. If you want to move your ISA to a Lending works ISA you should contact the Lending works ISA manager.

Why should you transfer your ISA?🌈ℹ

You could transfer your ISA for a variety of reasons such as getting a better rate or because of reasons such as the cost of your current ISA manager or their performance.

You might also be transferring all your ISAs to a new manager to have all your savings in one place or rather move all your savings to different places in a scenario where your combined savings are over the financial services compensation scheme limit of £85,000 per account.

There are a variety of ISA providers out there and you can view their various offerings, including the way they invest, their past returns etc all online so you have an idea of which provider you want to move your money to.

To transfer an ISA you simply open a new ISA account(in this case a Lending works ISA ) then fill an ISA transfer form and send to your old ISA manager. It’s that simple. Once the transfer is done you will get a closure statement showing exactly how much you have transferred.

Be sure to be on the lookout for any charges or transfer out fees imposed by your current ISA manager.

How long does your ISA transfer take?👀

This depends on what ISAs you are transferring. If you are transferring a cash ISA then this should take 15 days. If you are transferring a stock and shares ISA then this will usually take 30 days.

If your ISA transfer takes too long you can report it to the Financial ombudsman.

Which ISAs can you transfer?❄⌛

You can transfer any ISA although there might be some penalty for ISAs which are fixed-term or notice ISAs. Some ISA providers do not accept ISA transfers.

If you have a notice ISA, it is probably best to give notice to your current ISA provider to avoid any charges.

If you choose to proceed without giving notice then you should compare how much interest the new ISA will earn you and the cost of the penalty. If you still make more money by transferring your ISA then, by all means, transfer your ISA if you wish.

The Lending works ISA is covered by the financial services compensation scheme. This means you are covered by up to £85,000 per account in case anything goes wrong with your Lending works ISA.

The lending works ISA is an innovative ISA.

What are Innovative ISAs?🎁

Innovative ISAs are specific for the peer to peer lending model.The innovative ISA allows you to invest your funds in a variety of peer to peer platforms with some or all of your ISA allowance and still benefit from the tax free and capital gain status.

This allows you to lend your money in a variety of ways such as to fund properties, to businesses etc. This model is currently not protected by the financial services compensation scheme but most platforms provide a reserve fund to cover you in case anything goes wrong. You must remember these funds are discretionary and hence are not regulated by any body. This means you might be successful in claiming if something goes wrong or you might not.

How does the innovative ISA differ from the Cash ISA?😮

Innovative ISAs offer more than Cash ISAs in regards to interest rates, this is due to the fact that innovative ISA platforms cut out the middleman and thereby bring about savings to borrowers and more interest to savers.

Comparing innovative ISAs can prove difficult due to the huge differences in propositions between different peer to peer platform. Taking a look at just the interest rates as a comparative measure will be misleading as other factors such as the reserve funds(incase anything goes wrong), how funds are deployed and diversified etc all matter.

The higher interest rates on offer with innovative ISAs also come with a huge risk which is currently not covered under the financial services compensation scheme. This means you can certainly lose all your money with no recourse.

How do innovative ISAs work?🚩

Innovative ISAs are similar in their tax-free status to other ISAs, they allow you to lend money through an FCA regulated peer to peer platform to borrowers. This may be businesses or private individuals or through property loans. Peer to peer is also abbreviated as P2P and the forms of loans permitted under the innovative ISA include, small business loans, personal loans and property loans as indicated above.

Innovative ISAs cannot be used for equity-based lending and therefore there is a completely different regulation for this under a different ISA regulation.

Innovative ISAs are available to UK taxpayers who are above the age of 18.

The current ISA allowance for the 2017/2018 tax year is £20,000 and this is subject to change for the next tax year. You do not have to invest this whole sum and you can invest in increments over the tax year.

Some of the well-know Innovative ISA providers include Zopa, ratesetter and funding circle.

How does the lending works ISA look to reduce risk?

The lending works ISA website states the below:

“ An Innovative Finance ISA is an investment. That means your capital is at risk and returns aren’t guaranteed. We are also not covered by the Financial Services Compensation Scheme (FSCS).

That said, we reduce the risk wherever possible. Here’s how.

Lending Works Shield

The Lending Works Shield provides the first-loss cover across our entire loan book, using a reserve fund and insurance covering some of the leading causes of borrower default.

Diversification

Your ISA contributions are split across many personal loans. This natural diversification is one factor that makes Innovative Finance ISAs far less volatile than Stocks and Shares ISAs. “

You can learn more about the Lending works ISA on their website. 

The information provided on this page about the Lending works ISA is accurate at the time of writing. You should check with the Lending works ISA website as some of the information on this page may have changed. If you have any questions or comments please let us know below.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.


John Bate

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.