Peer to Peer ISA
** Updated March 21st 2016. New details are being released daily regarding the new peer to peer ISA / IFISA so as information is received, this article will be update.**
Investors should be happy the peer to peer lending ISA has finally been given the government thumbs up, but only a few weeks from the 2016 Innovative Finance ISA release date and still the rules aren’t clear.
Peer to peer ISA rules can be complicated so I’ll explain what I understand about the new Innovative Finance ISA (IFISA):
Peer to peer finance companies that are not fully authorized by the FCA (Financial Conduct Authority) cannot offer an IFISA. Most peer to peers platforms are still in interim permission stages as they apply for full FCA authorization, so these platforms won’t be offering an IFISA until they are authorized. This could take several months and as I heard from one platform boss, it took 6 months to be assigned a case manager after he submitted application.
ISA’s will be placed into 3 categories: Cash ISA, Stocks & Shares ISA and Innovative Finance ISA. You can split your £15,240 allowance across all 3 categories but you can only invest into one account within each category each year. This means you would have to sink your entire peer to peer ISA allowance into a single peer to peer platform. Not good for diversification purposes. After one year has passed, you would be able to split the allocation to multiple platforms. Read on as .
Fortunately there are some workarounds so you aren’t stuck with one platform all year. Let’s say you invested £5,000 in April 2016 invested into Ratesetter’s peer to peer ISA, but then decided in June 2016 you wanted to invest a further £5,000 into Saving Stream’s peer to peer ISA. You could do so but you would need to invest an additional £5,000 into Ratesetter, then move the entire £10,000 to Saving Stream. Alternatively you could just move your original £5,000 investment from Ratesetter to Saving Stream and invest the other £5,000 in shares. You just have to move the entire IFISA allocation for that year. Again this is because you can only invest in a single peer to peer ISA platform each year.
You can use previously invested ISA funds from places such as Cash ISA’a and Stock ISA’s. These allocations can be split into multiple investments through different platforms. This is positive news. If for example, you have £100,000 in a cash ISA from thrifty saving over the years (lucky you!), you could allocate that into as many different peer 2 peer lending platforms as you wish, providing the platforms offer an IFISA. This is great for those looking to diversify into multiple platforms. You would need to liquidate all holdings into cash before any moves were made.
As it currently stands, platforms will force current investors to liquidate their regular account holdings in order to reinvest in an IFISA equivalent. Hopefully this will change.
There are some new aggregator services that may be included in the approved IFISA scheme. Aggregators are companies such as InvestUp that allow you to invest in multiple peer 2 peer platforms through their single platform. Investing through an aggregator would seem to solve the issue of only being able to invest new IFISA in a single platform each year. Aggregators are relatively new so it’s still unknown how the IFISA will work. They also don’t contain all the popular platforms so you are limited in how you can invest your money.
More is sure to be revealed soon so this article is only intended for information purposes. I suggest checking the HMRC’s website for up to date information.