DIY Investor Magazine
/
March 2016
22
INNOVATIVE FINANCE ISA
The Innovative Finance ISA will allow savers using peer-
to-peer lending platforms to receive tax-free interest
from April 2016.
Peer-to-peer (P2P) lending platforms that allow savers
to lend directly to borrowers – individuals or companies
– have grown exponentially and by the end of 2015
the amount lent was estimated to have passed £4
billion.
By cutting out traditional lenders such as banks and
building societies, borrows are able to achieve
extremely competitive loans whilst lenders are able to
beat the savings rates on offer on the high street.
Borrowers are carefully scrutinised by the P2P
platforms and the lender is able to choose the level
of risk (that the loan will not be repaid) they can accept,
over what time frame they wish to lend and this
influences the rate of interest they receive.
Albeit that very high potential returns may be had from
highly risky lending most P2P savers are happy to beat
traditional savings rates and many can achieve returns
in excess of 5%; this contrasts with the £160 billion that
is estimated to be sitting in easy access savings
accounts earning less than the Bank of England base
rate of 0.5%.
The government has been keen to encourage P2P
lending in order to encourage competition in the
banking industry and in the July 2015 Budget
announced a P2P ISA - the Innovative Finance ISA.
•
Innovative Finance ISA available from 6th April
2016.
•
It’s a third type of ISA along with the Cash ISA and
Stocks and Shares ISA.
•
A ‘wrapper’ around P2P investments - no tax on the
interest that they earn.
Innovative Finance ISAs (not particularly snappily,
‘IFISAs) have been set up as is a third type of ISA
because of the difficulties involved in allowing savers to
withdraw their investments within 30 days; this is a
feature of other ISAs, but trying to guarantee this on all
P2P platforms presented difficulties.
From April, those wishing to avail themselves of one
of the new accounts will need to decide how to
apportion their annual subscription allowance between
the three options and consider that P2P loans may
already be held within products such as investment
trusts which can be held within a Stocks and Shares
ISA.
The IFISA is seen as sitting somewhere between the
Cash ISA and the Stocks and Shares ISA on the risk
reward curve; there are currently no plans for a Junior
ISA equivalent.
IFISAs are likely to come in a wide variety of shapes
and forms with some of the better-known lenders such
as RateSetter, Funding Circle and Zopa expected to
allow savers to open accounts directly on their
platforms whereas others will be offered through fund
supermarkets or execution only brokers
In his 2015 Autumn Statement, Chancellor George
Osborne announced that the list of qualifying
investments for IFISAs will be extended in autumn 2016
to include debt securities, or loans, offered via
crowdfunding platforms.
