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The new Innovative Finance ISA

Soon you’ll be able to keep some of your Peer to Peer returns tax free with the new Innovative Finance ISA (IFISA).

By our guest writer, personal finance journalist, Andrew Hagger

Editor's note: As one of a handful of P2P platforms to already have full FCA permissions, we will be launching our IFISA on 6 April 2016.

For many years UK savers have been able to legally shelter some of their cash savings and stocks and shares investments from the taxman via an Individual Savings Account (ISA) and from April 2016 the scope is being widened further as Peer to Peer (P2P) lending will become eligible too.

This move is excellent news for P2P customers, who will be able to keep more of their returns.

From an industry perspective, it’s recognition of how important the sector has become and puts it on a level playing field with the tax free savings and investment products from the high street banks.

In his 2015 summer budget, the Chancellor confirmed that Peer to Peer lenders will be able to enjoy tax free interest courtesy of the new Innovative Finance ISA (IFISA).

The current ISA limit is £15,240 and this is due to rise again in line with inflation from the start of the new tax year.

There had been fears that the Treasury would bundle P2P lending in with stocks and shares ISAs, however, it was finally decided that for the sake of clarity a separate ISA wrapper should be created.

This has been welcomed by P2P providers as it allows them the opportunity to clearly explain the risks and rewards associated which are very different from those involved with stock market based investments.

Peer to Peer lending has grown rapidly in the UK since 2005 and the returns on offer should become even more appealing to customers when the IFISA comes into play next year.

From 6 April 2016, to be more precise, lenders will be able to set up an IFISA with individual P2P companies enabling them to allocate a capital balance on their P2P loans, up to the ISA allowance threshold, to this account each year, and enjoy tax-free returns on the interest paid by borrowers on this amount. 

The icing on the cake is that the introduction of the IFISA also coincides with the launch of the new personal savings allowance; this means that as well as the annual IFISA allowance, lenders could receive up to an additional £1,000 in interest on their P2P loans not held in an IFISA without being liable for income tax.

It seems to me that 2016 may be the year where the popularity of P2P investing with its already attractive returns could move up gear and give the banks something to think about.

The Crowdstacker IFISA is available now! For full details and to apply today, click here.

5th November 2015