THE END of the tax year is less than two weeks away, but there is still time to make use of your allowance.
Everyone gets an annual ISA allowance of £20,000. Previously your main option was to spread that between the poor-paying cash ISAs or the higher-risk stocks and shares ISAs.
There is now another alternative, the Innovative Finance ISA (IFISA), which lets you earn returns on peer-to-peer loans tax-free.
Here is what you need to know about the IFISA.
You can only have one
This doesn’t seem so innovative of the Treasury, and there are plenty of people calling for changes, but currently you can only have one IFISA.
This means you could have money in P2P loans diversified across several platforms, but you are only allowed to choose one of those providers for your IFISA.
Many are urging the Treasury to allow for an IFISA wrapper that incorporates loans from a range of P2P platforms.
There are no restrictions on the IFISA allowance
The IFISA is just one tax-free product on the market.
Savers and investors can also put money into a Help to Buy ISA, Lifetime ISA or just the traditional cash or stocks and shares tax wrapper.
It then gets a bit confusing when it comes to limits. All adult savers in the UK get an annual ISA allowance, which is £20,000 for this year.
But Help to Buy ISA savers can only contribute up to £1,600 a year while those putting money into a Lifetime ISA are limited to £4,000 annually.
The IFISA, as well as cash and stocks and shares products, have no limits and you can put away up to £20,000 tax-free each year.
Transferring existing P2P loans is tricky
One of the quirks of the IFISA system is that if you already have P2P savings that aren’t in a tax wrapper, you can’t automatically transfer them.
You would need to sell them on your platform’s secondary market, if they offer one, and then invest in them again through the IFISA.
This may result in having to pay sale fees.
Some are more flexible than others
The Treasury introduced new ISA rules in April 2016 that lets savers take money out of a cash ISA and pay back in during the same tax year without any penalty.
Previously that money would have lost its tax free status and that portion of the allowance would have been wasted. But now savers can withdraw and replace funds in the same tax year without it affecting their allowance.
This is known as a flexible ISA. Providers don’t have to offer this and some P2P lenders do while others will not allow it so it is important to check the terms if you think you will need to withdraw and replace funds during the tax year.
Check the small print
Most IFISAs are free for investors, which gives them one up on stocks and shares ISAs which may require charges or transfer fees.
However, some IFISA providers do charge for certain aspects of their service.
For example, PropertyCrowd has an annual charge of 0.95 per cent.
Others may charge for transferring out of its wrapper. Landbay has a £50 charge for moving funds to another provider.
Some may also have different minimum investments for their IFISA product compared with their standard lending account. For example, Landbay has a minimum investment of just £100 in its non-ISA account and £5,000 for its IFISA.
Read more: IFISA special report