Current Affairs

Lending Works hails dawn of new Innovative Finance ISA era

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Today as a company we're lauding the arrival of the new Innovative Finance ISA (IFISA) era, which has effectively begun with the commencement of the new tax year. Inclusion of peer-to-peer (P2P) lending within the ISA framework was originally announced at the 2014 Budget, with HM Treasury later confirming the creation of this third ISA category at the Summer Budget last year. At present only P2P loans can be included in the Innovative Finance ISA.

It will bring a significant tax efficiency for peer-to-peer investors, given that they will be free to subscribe funds up to the value of the annual ISA allowance (£15,240 for the 2016/17 tax year) and not have to pay tax on the interest returns. In addition, there will be no limit on the amount that can be transferred into the new wrapper from funds accumulated within Cash and/or Stocks & Shares ISAs over previous financial years, as per current ISA legislation.

Peer-to-peer platforms still in limbo

Like most of the major peer-to-peer lending platforms, we've been operating under interim permission from the FCA since 2014, and with the deadline for application for full authorisation having only passed less than six months ago, are still awaiting confirmation of this approval from the Authority. It is only with full FCA permission that platforms can apply to HMRC to become ISA Managers, and a platform must be an ISA Manager to be able to offer the new IFISA.

However, Lending Works has been in regular contact with the FCA with the aim of ensuring a swift determination of its application, and we are optimistic that we'll receive the green light very soon. We've long since begun work behind the scenes in order to offer the IFISA shortly after the process is complete.

Nick Harding, founding CEO of Lending Works, commented:

“The last two years have been a mix of excitement and suspense for us since finding out that peer-to-peer lending platforms would be able to offer ISAs to its customers, and we’re thrilled that this momentous day has now arrived. Ideally, we would have liked to have been ready to offer the IFISA to our customers from day one, but we respect the need for a detailed and thorough authorisation process, and, given recent communications with the FCA’s representatives, are hopeful of offering the new product in the next few weeks.

“But we are less concerned about the race to the finish line, and more focussed on the long-term benefits that the IFISA will bring. The fact that experts predict the P2P lending industry is set to swell to £50 billion within the next couple of years alone is indicative of the huge potential of this new wrapper, and we look forward to playing a major part in this exponential growth of our sector.”

“Our experienced team have already started working on a simple-to-use IFISA interface, making it quick and easy for our lenders to grow their money, tax-free.”

Keeping customers informed

Lending Works has been particularly proactive in keeping the public informed of developments in the build-up to the new wrapper going live, and recently noted an important and beneficial ambiguity in the IFISA rules. It is widely known that investors will only be able to subscribe funds to an IFISA with one provider in each financial year. However, we were quick to spot the ability for investors to be able to transfer unlimited funds from pre-existing ISAs (accumulated over previous tax years) into IFISAs in any amount they choose, including splitting these ‘old’ ISA funds across IFISAs held with multiple peer-to-peer lending platforms if they wish to. This has since been confirmed by HMRC.

Along with providing regular updates on developments with the IFISA consultation to members of the public, we've highlighted the potential benefits of the Personal Savings Allowance (PSA), which also goes live today, and will allow basic-rate taxpayers to shield up to £1,000 in interest returns on savings (including P2P loans) each tax year (£500 for higher-rate taxpayers).

“For us, the emphasis is on having a thorough knowledge and understanding of what this new type of ISA entails, so that we can clearly communicate the risks, rewards and complexities to customers," Nick added. "We have also been vocal on the PSA, which will potentially bring a double tax efficiency for our lenders.

“As such, we believe we have led the way in terms of keeping customers and potential stakeholders informed. But it is also something we’ve prioritised within the company too, and having a team who fully understand the rules and regulations with respect to the IFISA means we are well placed to deliver the ultimate customer experience once we get the nod from the FCA. And hopefully, this should be very soon!”

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Michael Todt

Mike joined Lending Works in early 2015 with a background in marketing and journalism. Having long held a passion for economics, he is now the chief contributor to the Lending Works blog, and regularly writes about all things peer-to-peer lending, fintech and personal finance.