Innovative Finance ISA (IFISA) Explained

What is an Innovative Finance ISA (IFISA)?

The Innovative Finance ISA (IFISA) - introduced to the ISA family in April 2016 - is an account benefited by a tax wrapper that allows investors to hold peer-to-peer (P2P) loans and debt-based securities while earning tax-free returns.

The UK government launched the IFISA as a means of strengthening and accelerating the UK's booming alternative finance market.

Who can open an IFISA?

To be eligible to open an IFISA, investors must be a UK resident aged 18 or over. However, whether an IFISA is suitable for you and your investment portfolio will depend on a number of things, including the asset(s) that you are planning on holding within your IFISA, and your investor classification.

What assets are IFISA eligible?

There are a number of different types of investment that are IFISA eligible, and the main asset classes that can be held are peer-to-peer (P2P) loans and debt-based securities (also known as mini bonds).

If you are thinking of investing into an IFISA, it's important that you understand exactly how your money will be invested by your chosen provider, and how it will generate the target returns on offer.

What is the annual IFISA allowance?

The annual IFISA allowance for the 2023/24 tax year is £20,000. This is the same as the ISA allowance as a whole for the tax year, meaning investors can therefore invest all or part of their allowance into an IFISA.

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How many IFISAs can I have?

The simple answer is that, if you are 18 years old or over, you can hold as many IFISAs as you wish - but you can only open and subscribe funds to one per tax year. However there are several other things you should understand when it comes to the rules surrounding how many IFISAs you can have.

How do I open an IFISA?

Opening an IFISA is a simple online process. When you find an IFISA-eligible investment that you are happy to go ahead with, you will have the option to continue with an IFISA. What happens next can often differ on a platform-to-platform basis, and will also depend on whether you are investing into a debt-based security or a peer-to-peer (P2P) loan. 

What are the key IFISA rules?

There are some important IFISA rules - and features - that potential investors should be aware of. 

First and foremost, the key feature of an IFISA is that investors are able to hold debt-based securities and lend funds through the peer-to-peer (P2P) lending market without having to pay any income tax or capital gains tax. 

Can I transfer a Cash ISA to an IFISA?

Yes, you are able to transfer funds from an existing ISA - including a Cash ISA - into an IFISA. However, there are some rules in place and important processes to follow when doing this.

Firstly, you should be aware that if you are transferring money invested in an ISA during the current tax year, you must transfer all of it. On the other hand, if you are transferring money invested in an ISA during a previous year, you can choose whether you transfer all or only part of it.

Are IFISAs safe?

The IFISA is an investment product, meaning they have the ability to offer higher potential returns than traditional savings methods - such as the Cash ISA - but also come with a higher level of risk. The risk profile of an IFISA is typically medium–high, but the exact risks of each depend on a number of factors.

What is the difference between an IFISA vs Stocks and Shares ISA?

The Innovative Finance ISA (IFISA) and Stocks and Shares ISA are both investment products that are benefited by a tax wrapper, and both accounts typically have a medium/high risk profile.

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Despite these similarities, the IFISA and Stocks and Shares ISA do have some significant differences - differences which are good to know, especially when deciding which of the two ISAs is the most suitable for you and your investment portfolio.

What is the difference between an IFISA vs Cash ISA?

Though they both benefit from the generous ISA tax wrapper, the Cash ISA and IFISA are very different products. Firstly, the Cash ISA is a savings product, while the IFISA is an investment product. They also differ in regards to eligibility and risk profile, among other things.

The Innovative Finance ISA Guide

A comprehensive free guide providing information on the IFISA and how experienced investors can: 

– Diversify their ISA portfolio with peer-to-peer loans and debt-based securities
–Manage risk by understanding the underlying asset classes
– Potentially achieve a better return on their investment
– Use an IFISA as part of their retirement planning strategy