Back in 2015, the UK Government announced plans to allow peer-to-peer (P2P) loans to be held within Individual Savings Accounts (ISAs). Following this, April 6th 2016 saw it come to fruition, permitting lenders to benefit from tax-free returns on up to £15,240 (Increasing to £20,000 for 2017-2018), due to the new Innovative Finance ISA (IFISA).
The IFISA is the third type of ISA, alongside the existing Cash ISA and Stocks & Shares ISA. However, the significant difference being it’s the first to incorporate the P2P lending sector. P2P lending has been recognised as ‘cutting out the banking middlemen’, due to permitting savers to lend directly to borrowers.
Any UK taxpayer aged 18 or over is eligible for an Innovative Finance ISA.
Advantages of an Innovative Finance ISA
- Unlimited transfer of funds from adult ISAs (Stocks & Shares and Cash)
- Tax-benefits on subscribed annual allowance
- High interest rates: Products range from 3% -19% per annum.
- Option to hold multiple P2P Investments in one IFISA (Note: Only with 3rd party providers)
Disadvantages of an Innovative Finance ISA
- Cannot transfer existing P2P funds into IFISA. Must sell & re-invest. (However, this is likely to change).
- Cannot store P2P products outside of your IFISA provider i.e. Platform X IFISA only stores Platform X products.
- Cannot subscribe annual allowance to more than one IFISA annually.
- P2P lending is not a liquid asset so withdrawing funds during a loan term is not possible.
Compare Innovative Finance ISA Providers
Below are the available Innovative Finance ISA providers on OFF3R:
|The Assetz Capital IFISA enables investors to earn tax-free interest on their first £20,000 investment per annum.||Go to Site|
|LendingCrowd matches investors with SMEs seeking small business loans and has now launched their Growth IFISA. The LendingCrowd Growth ISA spreads your investment across a portfolio of loans.||Go to Site|
|Lending Works IFISA allows you to lend your money directly to credit-worthy borrowers, and benefit from tax-free returns on your P2P income.||Go to Site|
|Downing Crowd is now offering an IFISA for their bond investment opportunities typically offering interest rates of between 4% - 7% p.a.||Go to Site|
|The Goji IFISA enables investors to hold investments from a number of lending platforms in one place in a tax efficient wrapper. Investors can invest up to the £20,000 annual allowance in the Goji IFISA in 2017/18.||Go to Site|
|Money&Co.’s IFISA allows lenders to hold their P2P business loans in an ISA wrapper and receive income completely tax-free. With around 7% per annum net of fees.||Go to Site|
|Crowd for Angels is enables investors to select and lend money on secured terms directly to UK companies seeking funds to expand, diversify or develop their businesses, and is now offering an IFISA for their bond investment opportunities.||Go to Site|
|Crowd2Fund is a directly regulated FCA peer-to-peer lending platform and have rolled out the IFISA. Their IFISA opportunity allows investors to invest in Loan & Revenue and Loan & Bond IFISA products.||Go to Site|
|Property Crowd provide institutional grade debt and equity property crowdfunding investments in partnership with best-in-class principal lenders and institutional asset managers.||Go to Site|
|Landbay is a peer-to-peer investment platform that has been granted full FCA authorisation to provide the IFISA.||Go to Site|
Please head over to the OFF3R Innovative Finance ISA channel for a more detailed comparison of the Innovative Finance ISA’s available.
Investing in or lending to early stage businesses involves a high level of risk, including illiquidity (inability to sell assets quickly or without substantial loss in value), lack of dividends, loss of capital and dilution risks and it should be done only as part of a diversified portfolio. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Your capital is at risk.