Introducing the Innovative Finance ISA (IFISA)
Individual Savings Accounts or ‘ISAs’ are tax free savings wrappers introduced by the UK Government in 1999. Individuals have annual (‘Subscription’) allowances for each tax year (6 April to 5 April) that limit the amount they can ‘invest’ to their ISA(s) without paying tax on the income or capital gains. The ISA allowance for the current tax year (2017-18) is £20,000.
The Innovative Finance ISA or ‘IFISA’ was added to the list of available ISA types from 6 April 2016, giving UK ‘savers’ both an alternative asset class and a means of diversifying investment. The inclusion of peer to peer (P2P) lending investments offered a higher income alternative to Cash ISAs at a time of persistently low interest, without the fluctuating capital values of Stocks and Shares.
Peer to peer lending describes a direct financial arrangement from individual to individual or individual to business, facilitated by online Financial Technology (FinTech) ‘platforms’. Bypassing the traditional banking system, investors (‘Lenders’) can achieve higher rates of return when accepting the risk that the borrower may not be able to keep up repayments or repay all their loan.
These alternative investments aren’t covered by the government-backed Financial Services Compensation Scheme (FSCS), so P2P provider platforms typically establish other safeguards to help minimise investor risk. For example, all Proplend loans must satisfy comprehensive due diligence checks and be secured with a first charge over income producing UK commercial property.