2019 was a big year for the Innovative Finance ISA (IFISA) market as it crossed the £1 billion investment mark.
The government introduced the IFISA in April 2016 to further advance the growing alternative investment market by allowing investors to take advantage of peer-to-peer (P2P) lending and debt-based securities with the added benefit of a generous tax wrapper. Before the introduction of the IFISA, investors were required to declare any income from P2P investments, and the gains were taxable at the individuals’ margin rates.
A strong start
The IFISA got off to a strong start in its first tax year (2016/17), with 7,200 IFISA accounts opened, totalling £36 million in subscriptions. This was despite a significant lack of publicity - especially when compared to other ISAs - and a shortage of providers, as delays meant that many companies ready and waiting with their IFISA products weren’t yet fully authorised by the Financial Conduct Authority (FCA).
The popularity of the IFISA among investors is somewhat unsurprising - its risk level sits somewhere between Cash ISAs and Stocks and Shares ISAs, and it offers high potential returns of between 3% and 15%. The returns - though not guaranteed - are inflation beating, unlike the returns offered by a Cash ISA, and IFISA investments are less volatile than those in a Stocks and Shares ISA because they’re uncorrelated to the stock market.
Read more: Choosing between a Cash ISA and an IFISA
Not only do IFISAs offer investors a way to make their money work harder, they have the benefit of extra transparency and choice. IFISAs offer an investor the opportunity to support sectors that are important to them - from SMEs to green energy - and come with easy to navigate online platforms where investors can track the progress of their investments.
So, it’s easy to see why the IFISA continued to pick up momentum in the 2017/18 tax year, with £290 million invested across 31,000 IFISA accounts, and in 2019 hit - and exceeded - £1 billion in inflows.
New regulatory rules in 2019
On December 9th 2019, new rules came into play that prevented everyday investors who are new to the P2P sector from investing more than 10% of their investable assets. Further to the rules introduced in 2019, the FCA announced that as of January 1st 2020, speculative mini-bonds could no longer be marketed towards everyday investors.
These rules are designed to protect everyday investors, ensuring they take into account the risks that IFISAs as an investment product carry, and they’re credited with ‘adding legitimacy’ to the growing sector.
With new rules set to strengthen the IFISA market, their popularity is expected to continue to rise among experienced investors who are looking for an alternative to savings products such as Cash ISAs - at a time when interest rates are staggeringly low - and the volatility of stocks and shares, with IFISAs forming an important part of an investors diversified portfolio.
As more and more platforms begin to offer IFISA products, and the types of IFISA available continue to expand, their demand is expected to continue to rise.
If you’re an experienced investor and you want to take advantage of the growing IFISA market, it’s important that you choose the right IFISA provider for you - taking into account their IFISA type (property, green energy, SME lending or consumer lending), loan term and risks vs returns.
The MAVEN Bonds product is aimed at experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).