Innovative Finance ISAs: Six years on
The Innovative Finance ISA (IFISA) was formally launched in April 2016, meaning that the tax wrapper around peer-to-peer investments has now been in existence for six years
The product got off to a slow start but uptake has grown substantially in recent years, as well as the number of providers.
Peer2Peer Finance News looks back on its history.
Read more: Six IFISAs that target inflation-beating returns
2016
First introduced by then-Chancellor George Osborne in 2015, the IFISA officially came into existence in April 2016.
However, P2P lending platforms needed to have full approval from the Financial Conduct Authority (FCA) before applying for ISA manager status with HMRC.
Due to the lengthy application process, only a handful of providers were able to offer the IFISA when it officially launched in April 2016.
The largest P2P platforms at the time – RateSetter, Zopa and Funding Circle – were not able to launch their IFISAs that year as they were still awaiting regulatory permissions.
On 1 November that year, new rules came into effect that allowed crowdfunded debt securities in the tax-free wrapper. Crowd bonds platform Abundance launched its own IFISA as a result.
2017
This year saw more IFISA approvals.
In January, LandlordInvest launched the first property-backed IFISA, then in February Lending Works and Landbay introduced their IFISA products and Folk2Folk launched its IFISA in July.
It wasn’t until May that Zopa and Funding Circle received full FCA authorisation.
Zopa and Funding Circle then launched their IFISAs to existing investors only, in June and November respectively.
Assetz Capital launched its IFISA for its auto-invest product in December 2017.
Initial HMRC figures showed a slow take-up of the IFISA in its first year, with £17m put into 2,000 accounts, which was put down to the biggest platforms missing from the market. However, these figures were later revised to £36m of subscriptions across 5,000 accounts for the 2016/2017 tax year.
2018
In February, CrowdProperty and RateSetter launched their IFISAs while Assetz Capital opened its IFISA up to manual lending accounts early this year.
Zopa and Funding Circle opened their IFISAs to new investors in January and April respectively.
According to HMRC’s ISA figures, there were £290m of subscriptions in the IFISA across 31,000 accounts in the 2017/2018 tax year, a 705.5 per cent rise on the previous year, with Funding Circle, Zopa and RateSetter dominating the market.
Peer2Peer Finance News data shows the average IFISA returns were 8.3 per cent this year.
2019
Exclusive data from the Tax Incentivised Savings Association showed the tax wrapper had been growing in popularity and as of May 2019 had attracted £764m since April 2016.
HMRC data showed that £328m was invested in IFISAs from 38,000 accounts for the 2018/2019 tax year to take the total invested in IFISAs to £641m across 92,000 accounts.
In 2019, the average IFISA return was 8.45 per cent, according to Peer2Peer Finance News data.
2020
Inflows were predicted to be marginally smaller in the 2019/2020 tax year as the pandemic hit platforms’ inflows and some of the largest players closed off to new investors.
RateSetter was acquired by Metro Bank in September, meaning the demise of its IFISA, while Funding Circle and LendingCrowd paused retail lending while they took part in state-backed Covid support schemes,
Despite this, HMRC data showed that IFISA investment surpassed the £1bn milestone.
£438m was invested in IFISAs in the 2019/2020 tax year, a 33.5 per cent rise year-on-year, to take the cumulative amount put into IFISAs to £1.07bn.
The average annual return on IFISA accounts was 9.04 per cent in 2020, according to Peer2Peer Finance News data.
2021
In February, Zopa announced it was pausing new IFISA account openings.
“Because of our strong performance through last year and recently diversified funding sources, we currently have high levels of liquidity in our platform and while this is positive for us, we want to ensure that we prioritise our existing investors and their relending to continue to provide a good investment experience for them,” Zopa said at the time.
Later that year, a working group, made up of HMRC, Treasury and FCA representatives, was set up to improve intelligence sharing between HMRC and the City watchdog, in response to the Gloster report’s call for better engagement between regulatory bodies.
This has led to HMRC’s ISA manager list being updated, with more than 30 companies removed from the register and new information added to make it easier for investors to understand.
In December, Lending Works announced its P2P exit, meaning another IFISA provider had left the market.
Peer2Peer Finance News data showed that IFISAs returned an average of 9.01 per cent during 2021.
2022
Zopa and Funding Circle permanently shut down their P2P businesses, creating an opportunity for other IFISA providers as investors looked for new places to put their ISA money.
There have also been new entrants to the IFISA market, such as Lendwise, which launched its IFISA in January. All IFISA investments will be used to fund the platform’s education loans, which are primarily used by post-graduate students seeking a fixed rate loan to fund their studies.
And new Islamic finance P2P lending platform Nester revealed it has lobbied HMRC to change its tax rules to allow it to launch a Shariah-compliant IFISA.
HMRC’s latest ISA manager list shows there are 73 approved IFISA managers.
