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Peer2Peer Finance News | September 18, 2019

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Will 2019 be the year of the Innovative Finance ISA?

Will 2019 be the year of the Innovative Finance ISA?
Hannah Smith

APRIL brings the dawn of a new tax year, and it will also mark the third anniversary of the launch of one of the latest additions to the ISA stable: the Innovative Finance ISA (IFISA).

Offering consumers the chance to invest some or all of their £20,000 ISA allowance in peer-to-peer lending with the returns sheltered from the taxman, the IFISA held the promise of tax efficient, stock-market-beating returns with lower volatility. But, looking at the take-up so far, has it been a bit of a damp squib?

Read more: P2P lenders deliver FTSE-beating returns in 2018

In the 2016-17 tax year, the first year the Innovative ISA was available, savers put £36m into IFISAs, according to government figures. By the 2017-18 tax year, this had risen to £290m across 31,000 accounts, with an average of £9,355 subscribed per account, a 30 per cent increase from the previous year. A significant rise but, to put it in context, savers put a total of £69.3bn into adult ISAs in the same year, so IFISAs still command a very small proportion of the overall pot.

Industry surveys point to a lack of awareness among most consumers about IFISAs, although people who are already familiar with P2P lending are much more likely to have one. Last summer Assetz Capital said it had noticed its users ditching cash ISAs in favour of the IFISA, which it said had grown in popularity steadily since launch. There is a theory that some growth in the IFISA has been due to existing P2P investors converting their non-ISA accounts, rather than new investors entering the market through an IFISA.

Read more: Only six per cent of Brits aware of Innovative Finance ISAs

Part of the issue is that it has taken P2P platforms a bit of time to bring their Innovative Finance ISAs to the marketplace. The entrance of the ‘big three’ P2P lenders into the IFISA market offered a boost to overall awareness, especially as they account for around 80 per cent market share. P2P research house Orca says at least 36 IFISA products are now available, although regulatory delays have meant launches have been slow.

Orca said in December that it has started a waiting list for its own IFISA, which will allow investors to lend through multiple P2P providers in one tax wrapper, with expected returns of up to 6.5 per cent, adding a new string to the IFISA’s bow.

Read more: P2P investors abandon cash ISAs

Former chancellor George Osborne, the man behind the IFISA concept, said at the end of last year that he is still confident about the success of the product, even if it had not got off to a “dramatic start”.

Will 2019 be the year the Innovative Finance ISA finally gains some much-needed traction?