You’ve most likely heard of an ISA. In fact, chances are you’ve probably got one. But did you know that you can now use your ISA allowance to invest in peer to peer (P2P) and other loan-based platforms with the same tax benefits? In this article, we explain how the Innovative Finance ISA (IFISA) works and why you might want to consider adding it to your savings and investments.
How does an IFISA work?
Launched in 2016, the IFISA allows individuals to use their annual ISA allowance to invest in loans offered on loan-based crowdfunding or P2P platforms. The IFISA is only available on FCA-regulated and HMRC approved lending platforms and allows people to invest up to £20,000 a year completely tax free.
What are the benefits?
Of course, the obvious advantage of an IFISA is the tax one – you get to keep all the profits you make and don’t need to share any of these with the Tax Man. So, if you’re thinking about investing via a crowdfunding or P2P platform, then selecting one that offers the option of an IFISA is a good way to reduce the amount of tax you will pay on your investments.
Another major advantage of most IFISAs is that they allow unlimited transfers in of funds from other adult ISAs (cash & stocks and shares) that you might have opened in previous years. So, if you’re looking to maximise your returns it can be a great option to transfer your ISA from other lower yielding ISA’s.
In addition to those benefits, both crowdfunding and P2P platforms have a track-record of outperforming many other investment products, usually upwards of 3% per year. In fact in 2018, every single IFISA on the market beat the FTSE 100.
Are there any downsides?
As with all investing, there are risks. Unlike a cash ISA returns are not guaranteed and your money is not FSCS protected once invested. Furthermore, the nature of P2P and crowdfunding based investments means that your money is often locked up for fixed periods of time – especially given the illiquid nature of some IFISAs –making it difficult to withdraw your funds before the investment period comes to an end.
At the moment you can only subscribe to one IFISA a year, meaning that all your tax-efficient loan-based investing has to be done through a single provider each year. But you can also open a stocks and shares ISA and a cash ISA in the same year and split your £20,000 across all three ISAs.
How do you get started?
There are now a number of IFISA’s available on the market, so it pays to shop around. You may want to use your IFISA to help diversify your portfolio or to improve your returns. Compared to other IFISAs which tend to focus on unsecured consumer or business loans, Propio allows you to invest in loans that are secured against UK property and opening an account takes just a couple of minutes. For early bird access to our IFISA, sign up here.
The opinions expressed in this blog post are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product. It is only intended to provide education about the financial industry. Please note: tax treatments are dependent on individual circumstances and subject to change.