In 2016, the UK Government introduced a new kind of ISA that was
designed to stimulate enterprise investment in the SME business sector.
The Innovative Finance ISA, or IFISA, would offer alternative sources
of capital for expansion, for instance through so-called peer-to-peer lending.
Now, the IFISA gives savers the potential to invest in this growing
market sector and gain higher target returns than a cash ISA (this is due to
the higher risk nature of the IFISA), and lower potential volatility than an
investment (stocks and shares) ISA, which is linked to the main markets.
Importantly, as with all ISAs, the interest is tax free.
Instead of investing in cash or in stocks and shares, the IFISA involves
the making of loans to individuals or businesses using money raised through an
online crowdfunding platform like Heritage Crowd.
The IFISA initiative was launched partly through perceived economic
necessity – in that businesses have found it more and more difficult to borrow
from banks – and partly to satisfy an increasing appetite for online
crowdfunding investment opportunities.
Heritage Crowd, for example, offers 6.25% p.a. through Heritage Bond
Series 1. This is intended as a fixed-rate return for the five-year term, but
is presented as a “target” return rate because IFISAs are not protected under the
Financial Services Compensation Scheme, unlike the other ISA products mentioned
above, and thus returns cannot be guaranteed.
Will investment in an
IFISA impact on my ISA allowance?People are currently allowed to put up to £20,000 in ISA investments
during each tax year. This can be put into a single ISA – or you could divide
the allowance across two, or all three types of ISA, in whatever proportions
What you can’t do is open more than one ISA of the same type during the
same tax year. This means, for example, that you could open only one IFISA in 2018-19.
But It also means that if you have invested in, say, just a cash ISA since
April, you could still open an IFISA or stocks and shares ISA this year – as
long as you have not exceeded your £20,000 annual allowance.
Can I transfer my
existing ISA?There are certain ISA rules that you will need to be aware of, but it is
simple to transfer current ISA savings to an IFISA. The main caveat is that if
you want to transfer ISA savings that have been invested during the current
financial year, you must transfer the entire amount.
However, you can transfer any amount of ISA savings from previous
financial years without affecting the current year’s £20,000 allowance.
Before making any transfers, you may wish to ask your existing ISA provider
whether any individual restrictions apply. Transfer time should take no more
than 30 days, but is typically 10-14 days.