A golden opportunity
Atuksha Poonwassie, co-founder of property crowdfunding and peer-to-peer lending platform Simple Backing and director of the UK Crowdfunding Association, delves into the potential and pitfalls of the Innovative Finance ISA
First of all, it should be noted that the introduction of Innovative Finance ISAs
(IFISAs) into the marketplace is a huge endorsement of the peer-to-peer lending and
crowdfunding industry. The ISA offering has not changed for many years and the
introduction of this product provides a huge opportunity in the marketplace.
IFISAs are the third type of ISA that exist alongside the cash ISA and the stocks and shares
ISA. It lets you use your tax-free ISA allowance while investing with any fully authorised
loan or investment crowdfunding platform which has the additional ISA manager permission
from HMRC.
Read more: IFISAs may leave investors short-changed
Eligible products for the IFISA are loans (sometimes known as P2P loans) and
debt securities (fully transferable bonds or debentures) issued through those platforms. With
the IFISA, you can lend money in return for a set amount of interest based on the length of
time you are prepared to leave your money invested.
The IFISA presents a real opportunity that I believe will be embraced in the coming months
and years. There is a general yield starvation at the moment and investors are looking for
better, viable alternatives that offer higher returns. I have seen products under the IFISA
umbrella offering returns ranging between three per cent and 19 per cent.
There are many other benefits.These include:
• diversity of investment opportunity, such as investing in property, small businesses or
renewable energy
• choosing to invest in areas you want to support
• better control of investments
• tax benefits on subscribed allowances
• unlimited transfer of funds from other ISAs
• greater transparency
The biggest challenge that I see is that there will not be enough investment opportunities in proportion to the funds available. However, this will change as more platforms start offering
products.
The adoption of the IFISA has been a little slow. Speaking to platform owners, this is partly
because the interim to full authorisation process with the Financial Conduct Authority (FCA)
has taken longer than expected. Many of the platforms that now have full authorisation are
either offering IFISA products or are working hard to bring these to market. Others are
looking to apply for ISA manager permission once they receive full authorisation.
Investors also need to have a balanced understanding. As an investor, you need to appreciate
what you are investing in, as not all products will be suitable. I suggest spending time
understanding the risks, researching the platforms that currently offer (or are due to launch)
IFISA products and decide for yourself which platform is best suited to you.
Read more: MoneyThing in no rush to launch IFISA
There are also IFISA restrictions that you need to be aware of. Assets are not liquid so
withdrawing funds during a loan term is not possible. You cannot subscribe your annual
allowance to more than one IFISA annually either.
My general feeling is that the IFISA presents a real opportunity. It has already increased the profile and acceptance of P2P lending and crowdfunding in the UK. It provides more investment choice across varying industries and allows investors to have greater autonomy and control of their investment process.
