In this week's blog, we want to pause the news headlines for a week and refocus on one of our core products, the IFISA. Now, if you are reading this, you are aware of the 'ISA season' and the April deadline that is now looming, as well as the obvious opportunity to make the most of your investments. Rather than recap the calendar basics, we want to talk about the changes to the IFISA this year and take a closer look at the reasoning behind the underlying opportunity and, ultimately, why you should consider diversifying your portfolio with this asset class.
The Innovative Finance ISA (IFISA) was introduced on 6 April 2016, giving UK savers an alternative asset class and a means of diversifying investment. The IFISA allows lenders to make peer-to-peer (P2P) loans within a tax-free wrapper, meaning that any interest earned will not be subject to tax and will not count towards an individual's personal savings allowance. There is a cap on the amount you can subscribe to ISAs each tax year, known as the annual ISA limit, which is currently £20,000. This allowance can be fully deployed into an IFISA or spread across the different types of ISA. Lenders can also transfer funds from existing cash ISAs or stocks and shares ISAs into an IFISA. ISAs from previous tax years do not count towards the current year's annual ISA allowance, so this is a way to increase your exposure to P2P lending.
From 6 April 2024, paying into ISAs of the same class with various providers within the same tax year will be possible. The fundamental change here is that investors don't have to commit to one ISA provider for each ISA class for that particular year. Now, in previous blogs, we have propagated the theory that choice leads to volume, and that's essentially what we expect to see here: choices in the market and the option to diversify with different providers will draw in the capital as most investors employ the theory that diversifying their investments gives their portfolio balance, and diversification of counterparties is essential as well. It also allows investors to actively manage their investments better and take advantage of opportunities as and when they arise. P2P as an asset class is a broad church, with our corner of it underpinned by the necessity of evolving the housing production market; as the number of investors cotton onto that trade, this will give them the ability to diversify their investments across P2P, whilst having the same level of tax-free earnings.
The second significant change announced was the inclusion of "long-term asset funds" into the IFISA, with the initial industry reaction last year being one of concern that it may dilute the product offering slightly, moving the focus away from P2P and into the regulated arena. However, one thing that has been apparent in the months post the Autumn budget announcement is that the IFISA may have been the wrong home for these sorts of open-ended funds, which may be reflected in the low take-up of the offering across the regulated industry - many believing that the traditional stocks and share ISA would have been a better match. Investment Weekly was quick to canvass some of the significant regulated providers in the wake of the announcements; some were quick to state they weren't interested in participation, with some questioning the idea's validity altogether.
An article in Citywire quoted commentary from Law firm Macfarlanes on some of the challenges regulated wealth management firms would face in offering products traditionally designed for pension funds to the retail market. The crux of the issue was the logistics around redemptions and notice periods; these types of funds are what would be referred to as 'slow money,' and that's not necessarily an excellent match for retail involvement.
Now, some of the previous paragraphs perhaps fly in the face of convention when it comes to the modus operandi of a disruptive fintech such as ourselves; obviously, we want to see disintermediation and retail investors getting the same amount of value out of the market as the more prominent players, but at the same time we want to see people extract as much value as they can out of these products, and that's why we see the vast value proposition in the IFISA in relation to accessing the pent-up demand of the housing market.
Invest & Fund has returned over £200 million of capital and interest to lenders with zero losses, showing the rigour that governs our business.
To take maximum advantage of this robust and exciting asset class, please visit www.investandfund.com or contact Shaheel at shaheel@investandfund.com.
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