The 2016 Budget introduced many potential changes for both investors and borrowers in the UK financial market. Perhaps most importantly for P2P lending was the arrival of the highly anticipated Innovative Finance ISA, or IFISA.
Since the start of the new tax year on April 6th, P2P investors have been able to put a tax-free ‘wrapper’ around their P2P investment up to the value of £15,240 – just like a normal ISA.
By the way, we’ve already mapped out a guide to the IFISA
here so take a look at that before you read on…
Read it? Great stuff, nice to have you back. So, now you know what the IFISA is, here’s a guide to how you can go about utilising your tax-free ISA allowance in a P2P investment.
Who’s offering the IFISA?
If you’re thinking about investing in a P2P platform using an IFISA, at the moment your options may be a tad limited. This is due to P2P platforms needing to be regulated by the Financial Conduct Authority (FCA).
A slight but temporary snag in what should otherwise be a very exciting time for the P2P industry is the lack of platforms who have actually been regulated thus far. This is possibly down to a lack of time and a little lack of foresight by the government as around one years notice was given for P2P platforms to get regulated before the launch date in April 2016 ,and the FCA says it takes about a year for most P2P platforms to complete the approval process from the moment they submit the application.
As a result, many of the big players are said to be stuck in a regulatory bottleneck with dozens of other providers in order to get regulated and start promoting the IFISA.
Top tip: We’ll be announcing the release of IFISA providers as and when they happen so be sure to sign up to our mailing list to keep up to date with all of the goings on in the industry.
How do I set up an IFISA?
As a UK resident, you may be entitled to a tax-free ISA allowance of up to £15,240 per year. This allowance could be spread across Cash ISAs, Stocks and Shares ISAs, the IFISA or even all three if you so wish.
When opening an ISA with a traditional lender such as a bank, you’ll more than likely head to the provider (the bank) and open the ISA with them directly.
Much like a traditional banking institution, investors who choose to utilise the IFISA will simply head to their chosen platform and choose which product they’re going to utilise their tax-free wrapper on.
Of course, which platform you choose may determine how much interest you receive and how much account control you get.
For example, how much control you get as an investor may be based on whether you choose a self-select or account based investment which may in turn affect your interest level and investment duration. For more information on the difference between self-select and account based P2P platforms see our handy guide here.
You may also need to be aware that P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) and so, should the platform go under you may not be able to claim any compensation on funds lost.
This doesn’t mean that you’re completely vulnerable however as some platforms aim to reduce the financial losses of their customers through a number of safeguarding techniques which we’ve highlighted and explained here.
Can I transfer funds from my existing ISAs?
The simple answer is yes so long as you observe the rules and regulations. If you’re looking to transfer part or all of your funds from your historic ISA into an IFISA then you may do so providing you make the transaction as a direct transfer.
As for your old P2P loans, sadly you won’t be able to transfer these into the IFISA as currently they are only available to new P2P investments.
That said, money that you’ve saved in a different category of ISA (Stocks and Shares or Cash ISA) may be eligible to be transferred into the IFISA. However, there are many rules that you’ll probably have to adhere to when transferring which we’ve explained in our IFISA Explained blog here
How do I find out about the new IFISAs?
By signing up to our mailing list of course! We’re going to be announcing when the platforms start offering the IFISA via our mailing list so be sure to sign up. Click here to find out more.
Please note that tax treatment is dependent on the individual circumstances of each client and may be subject to change in the future.
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