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Is An Innovative Finance Isa (IFISA) For You?

Posted 1 years ago

Is An Innovative Finance Isa (IFISA) For You?
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Innovative Finance Individual Savings Allowances (IFISAs) are still a relatively new initiative. Launched by the government less than 5 years ago in April 2016, an IFISA allows you to make peer-to-peer (P2P) lending investments with interest that is earned not subject to any tax.

Viewed as a new route to becoming an investor, IFISAs offer you the opportunity to lend money to consumers, businesses, infrastructure developments or other projects, and enjoy tax-free interest on repayments in return. For the most part, the lending available to you is peer-to-peer lending, which means you lend directly to borrowers and not to a middle company that then lends to these borrowers.

It's important to think about whether an IFISA is the right product to help you to achieve your financial goals. If you simply want to save money with as less risk as possible, then you might prefer a Cash ISA which is protected by the Financial Services Compensation Scheme. On the other hand, if you aren't worried about risk and you want to beat inflation, then an IFISA could be right up your street.

In this handy guide, we list the advantages and disadvantages of the IFISA, which are currently on offer. Obviously, before proceeding it is wise to seek independent professional advice. Remember, when investing in P2P, your capital is at risk.

Key Statistics

  • £69bn was subscribed into ISAs in 2017/18, an increase of £8.8bn on 2016/17 and bringing total ISA funds to £608bn
  • £300m was subscribed to IFISAs by c.31,000 investors. This may seem small compared to the total amount of ISAs, but it is worth bearing in mind that this represents a growth in value of IFISAs of 805% from the 2016/17 tax year
  • Compared to 2016/17, the number of stocks and shares ISAs rose by 246,000, Cash ISAs subscribed to fell by 697,000, IFISAs rose by 26,000.
  • Similarly, whilst the IFISA is still small compared to cash and stocks and shares ISAs, the 26,000 new accounts represent 620% growth from the previous year
  • Average subscriptions in all types of ISAs in 2017/18 were £6,409, up 15% from 2016/17 tax year. The average value of an IFISA was £9,355 – nearly 50% larger than the average ISA.

Advantages and disadvantages



Advantages

Disadvantages

Interest earned from lending is tax free and remains so, regardless of how much your pot of money grows over the years.

There is a risk that you may lose your money. Remember, capital is not protected by the FSCS.

You can avoid being taxed on any capital gains that you accrue.

Interest rates can be affected by many factors, such as bad debts and liquidity.

You do not have to report your peer-to-peer (P2P) earnings to the taxman, or anywhere for that fact.

Default rates could be affected in the event of an economic downturn, which could affect yields.

You can transfer money from cash ISAs that you contributed to in previous tax years into any number of new IFISAs that you like.

Losses within the IFISA cannot be offset against capital profits - this is due to the fact that it is already within a tax-wrapper.

You can support entrepreneurs and growing businesses via your investment.

The returns that are advertised are certainly not guaranteed - so whilst your provider might say that you will get 6% - they will almost certainly say ‘up to’ 6%.

 

How does an IFISA Allowance work?

In the 2020-21 tax year, you can save up to £20,000 into an Isa. This can be a mixture of cash, stocks and shares or an innovative finance Isa.   So, to use up your allowance, for example, you could put:

  • £10,000 into a cash Isa
  • £5,000 into a stocks and shares Isa
  • £5,000 into an innovative finance Isa

How do I open an IFISA?

Investors can only open an IFISA through HMRC authorised platforms. For platforms to be authorised by HMRC they have to be authorised by the Financial Conduct Authority (FCA). Equally not all investors are eligible. Investors have to be over the age of 18 (IFISAs are not eligible for the Junior ISA) and UK residents (excluding the Channel Islands and the Isle of Man).

Who provides IFISAs? And where can I apply?

Use the below table to compare IFISA rates by P2P lending marketplaces and other providers, and find details on how to apply.

Provider

Estimated Returns and Details

How to apply

LandlordInvest

Rate: 5-12%

Type: Property

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

RElendex

Rate: 7-10%

Type: Property

Term: 12-60 months

Visit the site’s sign-up page for more details and to begin an application

Kuflink

Rate: 5-7%

Type: Property

Term: 12-60 months

Visit the site’s sign-up page for more details and to begin an application

AssetzCapital

Rate: 4.1-12%

Type: Various

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

LendingCrowd

Rate: 6-16.2%

Type: SME

Term: 3-60 months

Visit the site’s sign-up page for more details and to begin an application

PropertyPartner

Rate: 9-10%

Type: Property

Term: 6-24 months

Visit the site’s sign-up page for more details and to begin an application

Lending Works

Rate: 3.8-5.4%

Type: Consumer

Term: 36-60 months

Visit the site’s sign-up page for more details and to begin an application

Zopa

Rate: 4.5-5.2%

Type: Consumer

Term: 12-60 months

Visit the site’s sign-up page for more details and to begin an application

ArchOver

Rate: 6.3-10%

Type: SME

Term: 12-72 months

Visit the site’s sign-up page for more details and to begin an application

Albrate

Rate: 8-15%

Type: Various

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

Welendus

Rate: 5-15%

Type: Consumer

Term: 1-12 months

Visit the site’s sign-up page for more details and to begin an application

Easy Money

Rate: 4.8-7.2%

Type: Property

Term: 3-24 months

Visit the site’s sign-up page for more details and to begin an application

Funding Circle

Rate: 4.8-7.2%

Type: SME

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

Crowdstaker

Rate: 5-7%

Type: SME

Term: 12-36 months

Visit the site’s sign-up page for more details and to begin an application

Downing

Rate: 3.2-7.5%

Type: Various

Term: 1-24 months

Visit the site’s sign-up page for more details and to begin an application

Property Crowd

Rate: 7-10%

Type: Property

Term: 4-12 months

Visit the site’s sign-up page for more details and to begin an application

Rebuildingsociety

Rate: 10-19%

Type: SME

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

CrowdProperty

Rate: 7-8%

Type: Property

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

Choice

Rate: 4-4.7%

Type: Property

Term: 12-60 months

Visit the site’s sign-up page for more details and to begin an application

Lendahand

Rate: 5-6%

Type: Green Energy

Term: 24-36 months

Visit the site’s sign-up page for more details and to begin an application

Proplend

Rate: 5-12%

Type: Property

Term: 6-36 months

Visit the site’s sign-up page for more details and to begin an application

Folk2Folk

Rate: 4.5-12%

Type: Property

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

Money&Co

Rate: 7-11%

Type: Various

Term: 36-60 months

Visit the site’s sign-up page for more details and to begin an application

Goji Investments

Rate: 5-7%

Type: Various

Term: 12 months

Visit the site’s sign-up page for more details and to begin an application

HNW Lending

Rate: 7-15%

Type: Property

Term: 6-60 months

Visit the site’s sign-up page for more details and to begin an application

The House Crowd

Rate: 7%

Type: Property

Term: 36 months

Visit the site’s sign-up page for more details and to begin an application

Crowd2Fund

Rate: 9%

Type: SME

Term: 60 months

Visit the site’s sign-up page for more details and to begin an application

Crowd For Angels

Rate: 5-12%

Type: SME

Term: 24-60 months

Visit the site’s sign-up page for more details and to begin an application

 

For more details on each of these lenders, you can visit the Peer-to-Peer section of our website.

 

Tagged: IFISA Investment P2P



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