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ISAs & P2P lending: The basics

ISA stands for “Individual Savings Account”. However, this is not any ordinary account, and does not necessarily need to be a bank account.

Quite simply, an ISA is a special account with a tax wrapper which allows you to save and invest money with valuable tax benefits. This “wrapper” allows any income or profits from these savings and investments to be free from income and capital gains tax. 

In each tax year, individuals can subscribe to: 

> one cash ISA;
> one stocks and shares ISA; and 
> one innovative finance ISA 

You cannot subscribe to more than one cash ISA, more than one stocks and shares ISA, or more than one innovative finance ISA in the same tax year. You can, however, split your money between all three of these ISA categories in any amount you choose (subject to the overall annual ISA limit).  

The tax year begins on 6 April each year and ends on 5 April (inclusive) the following year. A reference to previous tax years is always a collective reference to funds you have placed into an ISA in previous tax years and which have remained in an ISA ever since (though this does not have to be the same ISA).

What is an Innovative Finance ISA?

An Innovative Finance ISA (IFISA) is a new category of ISA which became available from 6 April 2016. The IFISA allows interest and gains from peer-to-peer loans to qualify for tax advantages where these loans are made within an ISA. The IFISA acts as a wrapper around eligible loans, or where there is more than one lender in relation to a loan, each lender’s individual loan parts, allowing any interest on that loan or respective loan part to be free of income tax.

More generally, lending through an Innovative Finance ISA will mean all interest received on your loans, and any profits made through sale of your rights under a loan agreement, will be exempt from income tax and capital gains tax. However, payment of tax depends on your personal circumstances, and rules on payment of tax may change in the future.

We suggest you seek advice from an independent financial and/or tax advisor should you have concerns or questions about payment of tax before you open a Lending Works ISA. Remember you are entirely responsible for the management of your tax affairs including making any returns and payments of tax and complying with any applicable laws and regulations. We will not be sending any returns or documents to HMRC on your behalf, nor paying any applicable tax from your ISA or Classic Account.