Why we spoke up for the Innovative Finance ISA

The press has recently been filled with speculation about the future of the ISA system. From rumours of a cap on cash ISAs to calls for structural simplification and a renewed focus on equities, the debate is gaining momentum.

In March, we sent an open letter to Chancellor Rachel Reeves, signed by our Chair, Tim Sawyer, highlighting that the Innovative Finance ISA (IFISA) already delivers on the government’s objective of directing capital into British businesses, and urging the government to ensure it is not overlooked.

So far, there’s been no response. But the stakes remain high for investors, for UK businesses, and for the wider economy.

I’d like to speak more directly now, not just to policymakers, but to investors and the wider financial community, about why this matters. We at Folk2Folk are not calling for IFISA reform. We are simply asking that it be recognised for what it is and better understood for what it offers: a regulated investment wrapper that enables tax-free income while supporting British businesses.

The IFISA is often left out of national conversations, crowded out by the dominant focus on cash and stocks & shares ISAs.  Yet for the right investor, it ticks many of the boxes the government says it wants to encourage: private capital deployed into UK businesses, support for SMEs, regional job creation, and long-term economic value.

Why is it overlooked? The problem isn’t the IFISA wrapper itself. It’s that many people still misunderstand what it holds, usually P2P lending.  In our case, the ISA wrapper applies to business loans that are secured against UK land and property, with conservative loan-to-value ratios (typically no more than 65 per cent) and thorough, human-led due diligence. It’s carefully structured lending that pays a fixed monthly income to the investor, while helping small businesses start, grow and thrive.

Yet IFISAs don’t enjoy the same general awareness or media visibility other ISAs receive. They remain largely absent from national narratives, despite being a powerful option for many investors, offering access to a thriving and varied universe of smaller British companies.

There’s also persistent confusion about the lack of FSCS protection. Here’s the truth: no ISA is protected against investment loss. The FSCS only applies if the institution fails. We’ve prepared for that too. If Folk2Folk were to cease operations, we have on retainer an independent wind-down provider that would step in to continue management of the loan book.

The IFISA is not suitable for all investors. But for those seeking tax-free, fixed monthly income with capital secured against property, the ability to diversify their portfolio, and a more tangible connection to where their money is going, the IFISA is a compelling option.

It channels private capital into British businesses just as the government intends, but into small private businesses, not publicly listed companies. And by enabling this flow of capital, it creates and sustains regional jobs.

Ultimately, it gives investors more choice. Isn’t that what we all want?

We’re proud to have played a part in growing the P2P sector for over 13 years. And now it’s time for the IFISA to be acknowledged, included, and championed.

Sponsored content created in partnership with Folk2Folk.