Innovative Finance ISA

Tax Free P2P Investment Income

You can use your annual ISA allowance to invest in peer to peer loans through an Innovative Finance ISA (IF ISA).

Individual Savings Accounts (ISAs) have been around for more than 15 years now, offering UK savers the opportunity to accumulate interest and capital gains tax free. From April 2016, Innovative Finance ISAs were introduced alongside the traditional Cash and Stocks & Shares ISAs in recognition of the increasing popularity of alternative investments.

Increasing Limits – More Scope to Diversify Investments

ISA allowances have increased over the years to the current 2016-17 limit of £15,240. You can make new tax free savings up to this limit to any one of the three ISA types, or even split your allowance across types. The allowance for (April) 2017-18 will be £20,000, giving UK savers even more opportunity to diversify their investments and strike a risk-reward balance that they’re comfortable with.

In the continuing low interest rate environment, with many investors looking for better fixed income returns, the introduction of the IF ISA could be significant – particularly for investors that have built up ISA pots and want to take an income without the volatility of Stocks & Shares ISAs.

IF ISA Availability

There’s a wealth of choice when it comes to choosing which peer to peer platform (or platforms) to invest in and although it’s still early days for the Innovative Finance ISA, new providers are entering the market all the time. In recent months, the IF ISA has started to truly come to market as the list of providers being granted FCA approval and ISA Manager status has started to grow.

Proplend’s IF ISA is due to launch later in 2017, making its attractive, risk-adjusted returns available completely tax free – either by investing the current year’s ISA allowance or through transferring in and investing ‘ring-fenced’ ISA funds from previous tax years.

Keep Your ISA Funds Working Hard For You

It’s important to be aware that you can transfer ISAs from one provider to another at any time and it’s probably simpler than you think. You might find that returns for your existing ISA(s) aren’t what they used to be – recent reports estimate foregone earnings to date to be in the region of £100bn.

You don’t have to keep past ISA savings where they are and better returns can often be available elsewhere. Just contact the receiving provider, complete a transfer form and the providers should do the rest.

Unfortunately, you won’t be able to transfer any existing peer to peer loan holdings into an IF ISA, but as things stand, personal savings allowances available in the UK mean savers aren’t taxed on their income until they reach certain thresholds.

Personal Savings Allowances

Current savings allowances (also introduced from April 2016) enable basic rate taxpayers to earn investment income of up to £1,000 before paying tax (up to £500 tax free for higher rate taxpayers). The thresholds for these allowances are subject to change, so these concessions could be reduced or even withdrawn. Make sure you take advantage of these allowances while they’re being offered.