Innovative Finance ISA (IFISA) was first introduced by the UK Government on 6 April 2016. The key objective of the IFISA is to allow individuals to use some or all of their annual ISA investment to lend funds through Peer-to-Peer lending, whilst receiving tax-free interest and capital gains.
The initial details of the IFISA products were published in February 2016, with some providers offering expected returns of up to 8% - which is a substantially higher rate of return than many banks or building society Cash ISA accounts are currently able to match. It is important to note that the Cash ISA and the IFISA accounts are inherently different, particularly the risks associated with peer to peer lending.
The main difference between the two accounts are the rates of interest offered to investors by ISA providers. Typically, the rates offered by IFISA providers are double the rates offered by Cash ISA providers. IFISA providers are able to do this mainly because the Peer-to-Peer lending cuts out the “middle man”, otherwise known as the bank, which then allows borrowers to pay less interest but allows investors to earn much more.
These types of loans available via the Innovative Finance ISA carry certain risks, due to the higher rates of interest which are achievable through the Peer-to-Peer loans.
The new Innovative Finance ISA will be available to any UK taxpayer aged 18 or over and the government has confirmed there are no immediate plans to introduce a Junior Innovative Finance ISA for the under-18s.