There has been a lot of chatter about ISA reform lately, leaving many savers and investors unsure about where they stand with their ISA portfolios.
In her Autumn Statement, Chancellor Rachel Reeves announced that the Cash ISA allowance would drop from the current £20,000 to £12,000 in the 2027/28 financial year. For now, UK taxpayers can invest a total of £20,000 in ISA accounts, including Cash ISAs, Stocks and Shares ISAs, and Innovative Finance ISAs (IFISAs). Up to £4,000 can be added to a Lifetime ISA and up to £9,000 into a Junior ISA, just as long as the £20,000 annual ISA limit is not breached.
Unlike a Cash ISA where you earn interest from cash savings, IFISAs allow you to earn returns from alternative investments, most commonly peer-to-peer (P2P) loans and other forms of direct lending. For income-seeking investors, that can be appealing. But it also comes with additional complexity and risk.
In the 2025/26 tax year, IFISA rules remain broadly stable. However, recent reforms have significantly expanded what can sit inside an IFISA.
What’s different about IFISAs
The IFISA was initially created to allow UK taxpayers to invest in P2P lending and crowdfunding platforms but as of 6 April 2024, the IFISA remit was expanded to include long-term asset funds (LTAFs) and open-ended property funds for the first time.
This change was designed to enable everyday investors to access a wider variety of long-term, less-liquid asset classes within a regulated ISA framework.
In the past, IFISA investors had to choose just one IFISA to invest in per year, but this restriction has now been lifted. Investors can now hold multiple IFISAs across different providers, up to the £20,000 annual ISA allowance.
Who can invest in an IFISA
Any UK taxpayer over the age of 18 can open an IFISA with a registered IFISA provider and start investing in P2P lending, LTAFs and open-ended property funds. Up to £20,000 can be held within an IFISA each financial year, and this allowance resets on 6 April.
What are the risks?
IFISAs are tax free but they are not risk free. The key risk with IFISA investing is that if the underlying loans default, you lose your capital as well as any interest that you expected to receive. Good IFISA managers will work hard to minimise this risk, but it cannot be eliminated entirely. This is why it is so important to do your own due diligence before choosing an IFISA manager and trusting them with your money.
IFISAs are not protected by the Financial Services Compensation Scheme (FSCS) which means that in the event of a platform failure, you may not be able to recoup any money lost. For this reason, it is important to ensure that you can afford any losses associated with IFISA investing and diversify your portfolio so that you are not completely reliant on one type of ISA investment.
Why invest in an IFISA now
The ISA landscape is changing. Next year, the Cash ISA allowance will fall, reflecting a government aim to encourage more UK taxpayers to invest rather than save. Meanwhile, macro-economic and geo-political risks are primed to wreak havoc with the stock markets, sending nervous investors in search of new homes for their funds.
This means that there is likely to be an influx of new ISA investors hitting the market next year who are considering IFISAs for the first time rather than Cash ISAs or Stocks and Shares ISAs. The current tax year presents a great opportunity to get ahead of the rush and get to grips with the IFISA market so that you can maximise your tax-free allowance and make the best financial decisions with your money.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
With interest rates ticking lower and banks continuing to hold back on lending, both investors and borrowers are re-evaluating traditional finance options. And one of those options is property-backed peer-to-peer(P2P) lending.
As we look towards the year ahead, we expect to see property-backed P2P lending become more popular among both borrowers and investors.
For borrowers, alternative lending platforms can represent an attractive alternative to banks. Alternative lenders can make very quick decisions, and we can offer competitive terms to property developers and BTL investors who are seeking funding for their next project.
For investors, property-backed P2P lending platforms can deliver inflation-beating returns which can also be sheltered from tax within an Innovative Finance ISA (IFISA) wrapper. Furthermore, by investing in property-backed loans, investors are directly supporting the UK’s economic growth and helping to solve the ongoing housing crisis.
What is property-backed P2P lending?
Property-backed P2P lending is a form of alternative finance that allows individuals to lend money directly to borrowers through an online platform, with property used as collateral for the loan. Instead of borrowing from a traditional bank, property developers or owners raise funds from a pool of private investors, each contributing a portion of the total loan amount. Loanpad has a minimum investment threshold of just £1, as part of our commitment to make it as easy and affordable as possible for people to access property market returns.
The key feature of property-backed peer-to-peer lending is that every loan is secured against a physical asset such as a residential, commercial, or development property. This security can help to minimise the risk of capital loss for lenders because, if the borrower fails to repay, the property can be sold to recover the outstanding debt. At Loanpad, we take collateral on every loan and maintain very low loan-to-values (LTVs) to help control the risk of investor losses.
To date, we are proud to say that not a single investor has ever lost a penny of their capital with Loanpad. However, while the risk of capital loss can be managed, it is never completely removed. All investors are encouraged to do their own due diligence to ensure that they understand what they are investing in, and whether they are comfortable with the risks involved.
Why consider property-backed lending now?
The UK government has been vocal about its desire to see UK taxpayers move their money out of low-yielding savings accounts and into investments. To this end, Chancellor Rachel Reeves recently announced plans to reduce the Cash ISA allowance from £20,000 per year, to £12,000 per year. However, the £20,000 limit for Stocks & Shares ISAs and Innovative Finance ISAs remains intact. This means that UK taxpayers can continue to allocate up to £20,000 per year into IFISA-eligible investments such as property-backed lending.
In addition to this, a rash of new property tax announcements in the Autumn Statement has made it more difficult for people to build wealth by buying and selling or buying and renting residential properties. In order to earn money from the UK property market, these investors now need to think outside the box and consider investing in the sector rather than making a new property purchase.
How to choose the right peer-to peer property-lending platform
For all the reasons referenced above, we expect to see more investors considering P2P property lending in the year ahead. But the key challenge for newer P2P investors will be choosing the right platform.
Peer-to-peer property lending has been around for more than a decade, and in that time enhanced regulation and competition has separated the strongest players from the weaker ones. While past performance is no guarantee of future success, investors can now look to each individual platform’s track record to get a sense of its ability to manage risk effectively and deliver consistent returns to investors.
Property-backed P2P is collateral-backed and actively regulated, and platforms such as Loanpad have proven that they have the ability to protect investor capital even during macro-economic shocks such as the Covid-19 pandemic. 2026 could be the year that this sector takes off – just as long as investors understand the risks involved and trust the right platforms with their money.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
P2P INSIDER
Supercharge your understanding of Peer to Peer investing todayAfter months of rumours that Chancellor Rachel Reeves planned to slash the Cash ISA allowance as low as £5,000 per year, she finally clarified the government’s plans for the tax-free savings account during the Autumn Statement.
From 6 April 2027, the annual tax-free allowance for a Cash ISA will be cut from £20,000 to just £12,000 for most savers under 65. However, the overall ISA limit will remain at £20,000, leaving taxpayers with £8,000 which can be invested in either a Stocks & Shares ISA or an Innovative Finance ISA (IFISA).
This is all part of the Chancellor’s plan to generate economic growth by encouraging savers to become investors.
So why should savers consider the Innovative Finance ISA over a Stocks and Shares ISA?
As of April 2027, former savers will have a choice. Invest in the stock market or consider allocating into an IFISA.
Investing in a stocks and shares ISA offers diversity – there are more than 1,500 companies listed on the London Stock Exchange alone, covering every corner of the economy. It is possible to build a risk-managed, highly diverse portfolio of stocks and shares which can deliver good returns over time.
But the stock market is also subject to macro-economic shocks and market volatility, which could result in capital losses. Due to this volatility risk, it is particularly important to choose the right time to withdraw your money. For people using their ISA allowance to save towards a pension, this could mean delaying a withdrawal for months or even years while waiting for their portfolio to stabilise.
Innovative Finance ISAs can be a much less volatile option. An IFISA allows you to invest up to £20,000 per financial year in peer-to-peer loans or other alternative debt-based securities. Instead of holding cash or traditional investments, your money is lent to individuals or businesses through approved platforms. Investors collect their returns on a daily, weekly, monthly or quarterly basis, depending on the platform chosen.
As long as the underlying loans perform as expected, these monthly returns should be the same for the duration of the loan, when investors have the option to cash out or reinvest their capital into a new loan. Some platforms also offer the opportunity to access your capital early. For example, Loanpad offers an IFISA-eligible Daily Access account which allows investors to add or withdraw money from their account on a day-to-day basis (subject to liquidity).
For former savers, the relative stability and liquidity of an Innovative Finance ISA could appeal more than a stocks and shares ISA, but there are risks involved. The main risk in P2P lending is that a borrower defaults on their repayments, placing investor capital at risk.
Furthermore, IFISA investments are not covered by the Financial Services Compensation Scheme (FSCS) so any losses will not be recoverable. This is why it is so important for investors to choose a platform with a long track record, experienced management team and a strong risk management plan.
Loanpad manages risk by taking property as collateral on every loan, with a very low loan-to-value. This means that in the event of a borrower default, the property can be sold to recoup investor capital. Lending partners also co-invest on every loan alongside our investors, and take the first loss on any potential default, further protecting investor capital. We also carry out intensive due diligence on all loans throughout the duration of the loan term.
While past performance is no guarantee of future success, our risk management processes mean that we have maintained a zero- loss rate for our investors since inception.
Investing in British economic growth
Innovative Finance ISAs allow investors to directly support British businesses and entrepreneurs by providing them with funding that is increasingly hard to secure from banks. In this way, investing in an IFISA meets the government’s goal of supporting the British economy and boosting innovation.
The government’s new ISA regime is nudging investors towards investing and away from the traditional safe haven of cash savings. For lifelong savers who are considering investing for the first time, the IFISA can be a less volatile option than a stocks and shares ISA, while delivering higher returns than cash savings products.
Loanpad’s Innovative Finance ISA accounts are currently targeting returns of five or six per cent, depending on the type of account chosen. Learn more about our ISA offerings here.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
Property-backed peer-to-peer (P2P) lending has become an increasingly popular way for investors to diversify their portfolios, enjoy attractive returns, and support real-world projects. By lending money directly to property developers or businesses, investors can often achieve yields higher than those available from traditional savings accounts or Cash ISAs.
But as with any investment, there are risks. However, understanding these risks can help you make informed decisions and protect your capital.
So, what are the key risks in property-backed peer to peer lending?
1. Borrower default risk
The main risk with any peer to peer loan is that the borrower may not be able to keep up with their loan repayments, sending them into default. In property-backed P2P, this could happen if a developer runs into cash flow issues, if there are construction delays, or if the completed property fails to sell at the expected price.
Default risk can be mitigated in a few ways. Firstly, it is important to choose an experienced and well-run peer to peer property lending platform which has a strong track record of carrying out intensive due diligence on every loan and every borrower. Good platforms will detail their lending process openly on their website and will be available to answer any investor questions.
Next, look for loans that are secured against property, with low loan-to-values (LTVs) attached. In the event of a default, the platform can take charge of the property and sell it to recoup investor capital if need be.
Finally, maintain a diversified portfolio by investing in a range of different property backed loans, alongside other types of investments such as equities, cash and bonds. This reduces the impact of any losses in one area of your portfolio.
2. Property market risk
Most adults can remember the Global Financial Crisis, which saw the value of UK properties drop by approximately 16% in 2008 alone[1]. Property values can fluctuate due to economic conditions, changes in demand, or shifts in interest rates. If the property securing a loan falls in value, it makes the collateral less valuable and could place investor capital at risk.
This risk can be minimised by investing in property loans with low LTVs. For example, Loanpad has an average LTV of 45.44% on all of our listed properties. This means that these property values would have to fall by 54.48% before the underlying collateral is affected.
3. Liquidity risk
Unlike listed shares, peer to peer loans are not instantly tradable. If you need access to your money before the loan term ends it may be difficult, depending on the type of account that you hold. Loanpad offers two accounts – Classic and Premium. The Classic account allows for daily withdrawals, offering the option of instant liquidity to investors. The Premium account pays a slightly higher interest rate but requires 60 days’ notice on any withdrawals subject to liquidity.
4. Platform risk
When you invest through a P2P platform, you are also exposed to the financial health and operational reliability of that platform. If the company behind the platform were to fail, your investments could be at risk of disruption or even loss. This risk can be managed by ensuring that you choose to invest in a platform which is regulated by the Financial Conduct Authority. You can also research your platform of choice on Companies House to check their most recent financial statements and ensure that they are keeping up with their disclosure requirements.
It is also possible to mitigate this risk by investing across a number of different peer to peer lending platforms, while also maintaining non-P2P investments.
5. Economic risk
Broader economic conditions such as high inflation, rising interest rates, or a slowdown in housing demand can affect borrowers’ ability to repay and the overall performance of property markets. While macro-economic events are beyond the control of the average investor, keeping on top of the latest financial news can offer some insight into potential red flags which might impact on certain areas of your investment portfolio. For example, rising credit card defaults may indicate that consumer credit investments are becoming riskier. Likewise, mortgage defaults could suggest looming issues in the property market.
Economic risk can also be mitigated by choosing relatively short-term loans, so that you are less exposed to long term economic shifts.
And as ever, diversification is essential to minimise your exposure to one particular sector.
[1] https://www.theguardian.com/money/2009/jan/06/house-prices-fall-in-december
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |