What is an Innovative Finance ISA and who is it for?
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. It’s an asset class that has grown significantly in the last few years. Represented in the latest OFF3R Index that showed total P2P lending in 2016 was £2.6bn, up by approximately £700m from 2015.
Any UK taxpayer aged 18 or over is eligible for an Innovative Finance ISA.
How Does it Work?
With the new IFISA, individuals can lend money through FCA-regulated and approved lending platforms. As of January 2017, there are 10 P2P platforms that have been approved as IFISA providers. Three key sectors: property, personal & small business loans are served through the P2P lending sector, all of which are permitted under IFISA umbrella with returns of between 3-19% per annum being offered.
In addition to offering much higher returns than a traditional bank Cash ISA, it is important to note the risks associated with P2P lending can correlate to this.
- based on the 9 platforms that make up the index