What do the new IFISA rules mean?

The Innovative Finance ISA (IFISA) is changing this year. From 5 April, the IFISA tax wrapper will be extended to include long-term asset funds (LTAFs) and open-ended property funds for the first time. Investors will also be able to open multiple IFISAs per year, and partial transfers will be allowed between IFISA providers.

So what does this mean for Loanpad’s IFISA holders?

In short, nothing will change with your account unless you want it to. Any money which you have already invested in your IFISA account will remain invested, and your interest will continue to accrue as usual. For the 2024/25 tax year, you can choose to invest up to £20,000 in your Loanpad IFISA. However, this year you will have more IFISA options than ever before.

How is the IFISA changing?

The new IFISA rules have been designed to expand rather than limit the IFISA. If you have multiple IFISA accounts, from 5 April 2024 you can choose to reshuffle your portfolio and move money from one account to another. You can also open up additional IFISA accounts with other IFISA providers, just as long as you are careful not to invest more than your £20,000 tax-free annual ISA allowance.

You will also be able to use the IFISA wrapper to invest in LTAFs and open-ended property funds. LTAFs are regulated investment vehicles which allow professional and retail investors to invest in illiquid private market assets such as credit. Meanwhile, open-ended property funds are much more liquid and offer investor exposure to the property market.

Due diligence

As of 5 April, the tax year will restart, and your £20,000 annual ISA limit will be reset. With so much more choice in the IFISA market, it is important to ensure that you do not exceed this £20,000 limit across your portfolio of ISAs. Some IFISA managers have relatively high minimum investment thresholds of £1,000 or more, so this makes it all the more necessary to choose your IFISAs wisely to minimise the risk of losses.

No IFISA investment is protected under the Financial Services Compensation Scheme (FSCS), so there is no safety net if any loans go into default. All IFISA investors should be aware that there is a risk of losing some of their initial investment if the borrower is unable to keep up with their loan repayments. While this risk can never be eliminated, it can be managed.

Carry out your own thorough due diligence before making any new investment, and make sure you understand the risks involved. While past performance is no indication of future success, it is useful to check the default rate of a P2P platform or LTAF manager, as well as any publicly-available customer reviews and recent news stories.

Make sure you are comfortable with your IFISA manager before placing any money with them, and consider diversifying your investment by spreading your money across a range of loans, rather than backing just one or two projects.

Finally, educate yourself on the nature of the loans that you are backing, and any security that is in place. Check in with your loan portfolio on a regular basis and get in touch with your IFISA provider if you have any questions or concerns.

Peer-to-peer lending platforms earn their money in a few different ways. Many platforms make their income by taking an arrangement fee from the borrower when they originate a new loan. Others prefer to take a percentage of the loan payments, while some earn money through some combination of both.