Leap IFISA is launching!

What is an Innovative Finance ISA (IFISA)?

An Individual Savings Account (“ISA”) is a special type of account which acts as a “tax wrapper” around certain investments which allows any income and profits from those investments within the ISA to be free of income tax and capital gains tax.

There are six types of ISA available to consumers in the UK: a Cash ISA, a Stocks & Shares ISA, a Help to Buy ISA, a Junior ISA, a lifetime ISA and an Innovative Finance ISA. 

Every tax year, you can split your £20,000 ISA allowance into some, or all, of the three main types of ISAs: Cash ISA, Stocks & Shares ISA and Innovative Finance ISA. The tax year runs from 6 April to 5 April.

Leap is launching an Innovative Finance ISA (IFISA) – the most recent of all the ISAs that allows you to invest up to £20,000 in peer-to-peer lending (P2P) without paying income tax on your interest. 

IFISAs risk level sits between Cash ISAs and Stocks and Shares ISAs, with high potential returns of between 3% and 15%. The returns are higher than inflation unlike the returns offered by a Cash ISA and are less volatile than those in a Stocks and Shares ISA because they’re uncorrelated to the stock market.  As with any investment, returns are not guaranteed. Since its launch in 2016, individuals have put in over £1 billion into IFISA accounts.

Peer-to-peer lending within an Innovative Finance ISA follows the same process as investing in a standard account – the product and process will effectively be the same. Except you won’t pay income tax on your earned interest within an IFISA.

With Leap, your investment will be lent out across various borrowers to help them improve their financial well-being by paying off high-interest debt. You can expect the same benefits – a highly competitive interest rate – as well as the same risks. 

The interest earned on your investments in an IFISA will not count towards your Personal Savings Allowance. Find out more about your Personal Savings Allowance (https://www.gov.uk/apply-tax-free-interest-on-savings). 

How much can you invest in a Leap IFISA?

You can invest as little as £10 but there’s a limit on how much you can invest in ISAs per year. The Annual ISA Allowance is £20,000 for 20/21. You can use this allowance to fully invest in one ISA or spread the amount across various types of ISAs – as long as you do not go above the limit. 

You can transfer in some or all of your previous years’ ISAs into the Leap IFISA. You can also transfer in other ISAs from the current tax year, but you have to transfer the full amount if you do.  As your savings from a previous tax year do not count towards this year’s Annual ISA Allowance, transferring your ISA into an IFISA with Leap is an effective way to maximise your returns. 

Like all P2P investments, there are risks involved with investing in peer-to-peer lending. It’s important for you as an investor to acknowledge those risks and understand how the platform you choose is mitigating the level of risk involved.

How does Leap manage the risk with IFISA?

When you invest in the Leap P2P platform, you’ll face the same risks whether your investment sits within the IFISA wrapper or not. 

At Leap, we pride ourselves on making sure we’re offering loans in situations where we feel the borrower can easily make the repayments – without any damage to their quality of life. 

We use OpenBanking to get full access to our borrower’s financial picture, so we can make informed decisions that lead to a high-quality portfolio with minimal defaults. 

As well as the credit checks and affordability checks, we also use reward systems as an incentive for borrowers to pay down their debts. This includes reassessing and lowering their interest rate if they’re on track and not charging for early repayments. 

With all peer-to-peer lending platforms, there will be risk involved as your money will not be protected by the FSCS. Find out more about the risks involved and we’re doing to mitigate them. 

Is an IFISA right for me?

Every investor has a personal preference when it comes to risks. 

Even with the risks involved, the benefits of a peer-to-peer IFISA means that it is widely accepted as an effective investment option. 

As your investment and interest doesn’t count on Stocks and Shares inflating, merely on borrowers repaying their debts, a peer-to-peer investment is relatively low risk. 

Regardless, it’s important to understand your own financial goals to determine whether an IFISA is right for you. 

If you want to build a nest-egg or a retirement fund over time, then maybe you’d be better looking at Lifetime ISAs. Or if you just want to save a little each month – a cash ISA is more suitable.

But, if you’re comfortable with taking a small amount of risk to beat inflation and only want to commit to a medium-term investment, then an IFISA could be a good way of achieving your financial goals.

How to open an IFISA with Leap?

You need to be a registered member with Leap and a UK taxpayer, 18 or older, and have a National Insurance number.

Tax treatment depends on individual circumstances and may be subject to change in the future.

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