A totally unique Innovative Finance ISA (IFISA)
Lendwise is the UK’s only peer-to-peer platform that is dedicated to education finance. As an Investor on Lendwise, you can back ambitious individuals studying for MBA and Masters programmes by financing their education at Universities and Business Schools across the UK and beyond.
With a Lendwise IFISA, you can earn up to 9% p.a. tax-free* and make a difference to society by addressing United Nations Sustainable Development Goals #4 and #10.
What is an ISA?
An ISA, or Individual Savings Account, is a savings account for which-unlike any normal savings account-interest or dividend earned is tax-free and any gains from investments are free from Capital Gains Tax. It does come with one restriction, which is the amount of money you can save or invest in an ISA in a single tax year – also known as your annual ISA allowance.
An ISA can be of different types. For example, you can have a Cash ISA, a Stocks and Shares ISA or, for peer-to-peer platforms like Lendwise, an Innovative Finance ISA.
For the fiscal years 2022/23 and 2023/24, the maximum allowance is set at £20,000.
You can split your allowance across the different types of ISA that you might open in a particular tax year. For example, you could save some in a Cash ISA and invest some in a Stocks and Shares ISA or an Innovative Finance ISA.
Interest you earn on any ISA you hold doesn’t count towards your Personal Savings Allowance (PSA), because it’s already tax-free.
You can have multiple ISAs, but you can open only one type of ISA in each tax year. So even if you have opened an ISA this tax year and paid new funds into it, you can still transfer funds from previous ISAs into another ISA account.
You must be 16 or over for a cash ISA and 18 or over for a Stocks and Shares or Innovative Finance ISA (IFISA).
What is an IFISA?
The Innovative Finance ISA or ‘IFISA’ provides UK taxpayers with both an alternative asset class and a means of diversifying investment. The inclusion of peer to peer (P2P) lending investments in the list of IFISA eligible investments offers a higher income alternative to Cash ISAs at a time of persistently low interest rates, without the fluctuating capital values of Stocks and Shares.
These alternative investments (including P2P lending) aren’t covered by the government-backed Financial Services Compensation Scheme (FSCS), so P2P provider platforms typically establish other safeguards to help minimise lending risk such as through KYC and application assessment procedures. Lendwise, being an education finance platform, places great importance not only on the credit record of the applicant but on their employability prospects (largely affected by the ranking of the educational institution and degree programme) following completion of studies.
Permitted IFISA Investments & Providers
As things stand, only peer to peer lending (P2P) investments and ‘crowdfunding debentures’ are permitted within IFISA. UK P2P lending is regulated by the Financial Conduct Authority (FCA).
Only peer-to-peer providers with this approval are able to accept ISA ‘Subscriptions’ (new money paid into an ISA) and ‘transfers’ (funds already invested within another ISA in your name) once they have also been granted ISA Manager status by HMRC. Lendwise is both fully FCA authorised and holds the status of an ISA Manager granted by the HMRC.
Lendwise matches investors directly to creditworthy borrowers – enabling investors to earn higher fixed income returns and borrowers to gain access to funding which may not otherwise be available.
UK residency requirements
You can only open an ISA or subscribe to an ISA in a tax year where you have been a UK resident. Residency regulations state that if you were UK resident at any time during a tax year then you should be considered UK resident for the whole of that tax year.
You can therefore open an ISA and subscribe in a tax year that you moved away from the UK and in a tax year that you moved back. As always, you should let your ISA Manager know when you’re changing your primary address (even within the UK), but you should also not be making ISA subscriptions in a year where you have not been UK resident.
Existing ISAs don’t have to be closed when moving overseas, but you will be unable to transfer funds into your accounts. You are allowed to make flexible ISA replacement subscriptions during a period of non-UK residency, as well as flexible or permanent withdrawals.
Under the rules of continuous application, you will need to re-apply to make new subscriptions to our ISA if you haven’t subscribed during a particular tax year (whether due to residency or another reason). Just let us know you’d like to re-commence and we’ll let you know what you need to do.
Please note – UK resident also includes those (and their spouses/civil partners) who perform duties as a crown employee serving overseas. For further information visit www.gov.uk.
What are the different types of ISAs?
Types of ISAs
There are four main types of ISAs and one separate ISA for under 18’s.
The Junior ISA is available to those who are under 18 and has a separate allowance of £9000 per tax year. Those who can invest money into the account include parents, grandparents, and the child as long as they are aged 16 until the day before their 18th birthday. The child can remove the funds from the account once they turn 18, or are able to transfer the funds to a new ISA of their choice.
The four ISAs for adults are:
- Innovative finance ISA (IFISA)
- Cash ISA
- Stock and Share ISA
- Lifetime ISA
Innovative Finance ISA
An Innovative Finance ISA is a peer-to-peer loan instead of the Cash or Stocks and Shares ISAs. Innovative Finance ISAs offer a greater return on your investment, however the Financial Services Compensation Scheme does not back the investments and you may receive lower than what you initially invested.
A Cash ISA can be opened by any UK resident after the age of 16 and it is identical to any other savings account with the benefit of tax efficiency. You can choose between a fixed rate or a variable rate Cash ISA. The interest rate is dependent on the bank or building society.
Stocks and Shares ISA
Stocks and Shares ISA bring the benefit of earning a greater rate of interest than a savings or Cash ISA account. Similarly to a normal stock market account, a Stocks and Shares ISA means any gains you receive on your investment are tax-free.
You should note the market can fall and rise and you may not get back what you invested.
A Lifetime ISA is designed for those who want to purchase their first home or receive extra financial aid for their retirement. You may hold both cash and investment within the Lifetime ISA.
To open a Lifetime ISA, you need to be under the age of 40 and you can invest up to £4000 per year until you turn 50.
The Government will add 25% (up to £1000) per year onto your savings. However, suppose you choose to remove the money before you’re 60 that is not to purchase your first home. In that case, you will incur a 25% penalty (the 25% added by the Government) and additional charges from your bank or building society.
For more information about: Lendwise IFISA.
Funding by Subscriptions
You can invest (‘subscribe’) new money into Individual Savings Accounts each year subject to the maximum annual ISA allowance. The ISA allowance for the tax years 2022/23 and 2023/24 is £20,000.
New ISA subscriptions can be spread across new and existing ISAs with different providers AND across the various ISA types. Your ISA allowance doesn’t have to all go to a new Cash ISA, or all to an IFISA for that matter. It could be invested partly into an existing Cash ISA, partly into a new Stocks and Shares ISA and partly into an IFISA for example.
You can however only subscribe into one ISA of each type, each tax year regardless of providers. The responsibility to ensure that you’re not subscribing to too many ISAs or exceeding your allowances in any given tax year rests with you. Each ISA provider can only tell you what you’ve subscribed to with them.
Opening a second new ISA of one type is perfectly within the rules. Also, subscriptions don’t have to go to new ISAs (opened in that tax year) – they can go to an existing ISA of that type. If you’re looking for an ISA where you can remove funds and put them back before the end of the tax year, it’s worth checking if any of your old ISAs are Flexible ISAs.
It’s important to be aware that once an ISA has been opened, it stays open and invested with that provider until you withdraw all funds or transfer all funds to another ISA. Those savings remain within that tax free wrapper until you decide to do something with them. Current year subscriptions can also be added to an ISA started in a previous tax year.
You don’t have to remove the funds from an ISA at the end of each tax year, but you should keep an eye on how they are invested and what rate of return you’re getting – particularly beyond that first year. For example, many people will have opened Cash ISAs when interest rates were much higher and whilst that money is still invested, it may not be earning the same rate of interest as it was due to interest being generally lower.
P2P lending with Lendwise offers a fixed rate of return for the entire loan term, so IFISA interest rates will remain at the level that attracted you to invest until a borrower repays their loan. You can then reinvest the capital in a new loan or withdraw funds (either flexibly or permanently depending on your circumstances and what the rules of your IFISA allows). Lendwise also has tools that help you invest automatically through its AutoLend Investment robot.
Funding by Transfers
ISA ‘transfers’ refer to the movement of your ISA savings direct from one tax free ISA wrapper to another. This procedure is facilitated through a transfer process on the receiving provider’s side therefore you should not withdraw any ISA money yourself with the intention of depositing it to a new or existing ISA.
Transfers enable you to freely move your ISA investments around – to help diversify your holdings or even consolidate them. While the current subscription allowance allows significant scope to invest new money into ISAs, your right to transfer existing ISA funds mean it’s possible to invest larger amounts to the providers and asset classes that you want to – when you want to.
You can transfer all or part of your existing ISAs to a new ISA, or consolidate them to another existing ISA.
Opening an ISA with Lendwise
New platform users – will have to follow the standard investor registration process and once we verify your identity, we will ask you to select the type of account you would like to open. You will have to choose ISA from the dropdown list. You will then be asked to provide us with your National Insurance Number, to electronically sign a declaration and, as a final step, confirm you have read and agree to Lendwise ISA Terms & Conditions.
Your account is now set up and ready to accept funds so that you can start investing.
Existing Classic Account Lenders will have to create a new account with Lendwise using a different email address to the one used during original registration and then follow the process described above for new platform users. This allows you to keep these two accounts separate.
Funding Your Lendwise IFISA Account
Lendwise IFISA loan investments can be funded using your current tax year annual allowance (‘subscriptions’) and with ISA transfers from existing Cash ISAs, Stocks and Shares ISAs and other IFISAs.
- New money to Lendwise IFISA (subscriptions)
This will be done through the normal process of depositing funds to your investor account. You can do so by logging into your account and selecting “Add funds” from the top menu. You will then see your unique payment reference to use when initiating the transfer at your bank. It is important that you use this reference when transferring funds so that we can track and allocate and credit your funds to your account in a timely manner. Once the money is received into our client funds account you will get an email notification from us that funds have been deposited to your account, and you will then have access to your funds to invest in loans.
- ISA transfers to Lendwise
For transfers to our IFISA you will need to login to your account on our website and complete the online form found under the section “Transferring funds from an existing ISA”. By completing the form, you grant us the permission to communicate directly with the transferring ISA Manager. We’ll send the completed form off to that provider and make sure your request is fulfilled as soon as possible. If you have any questions about opening an ISA with Lendwise please email firstname.lastname@example.org or call +44 (0) 20 3890 7270.
Withdrawing funds from your Lendwise IFISA
Our IFISA is flexible which means you can withdraw and replace ISA monies within the same tax year. But you can also draw-down some or all the value of your ISA permanently.
Subject to selling your loan investments and the required cash being available, you can request a withdrawal from your ISA through your investor dashboard. Any withdrawals not returned to your ISA before the tax year end will be treated as permanent withdrawals. Any amounts replaced before 6 April will be treated as flexible withdrawals.
Transfers Out of Lendwise IFISA
If your ISA account balance with Lendwise is not in cash, you’ll need to sell your loan investments (if you have any) before you can transfer out as we can only transfer cash to other providers. You can make your loan investments available for sale through our secondary market.
When your ISA account balance is entirely in cash, we’ll transfer the proceeds as a single payment to the receiving provider. Your Lendwise IFISA will remain open and able to accept new ISA subscriptions and transfers in unless you specifically choose to close it permanently.
Your Right To Cancel
You will have 14 days from opening your Lendwise IFISA to change your mind and cancel. Just let us know within the cancellation period and we’ll return any new ISA subscription monies to you. Your right to cancel will expire after 14 days or once you have invested to any of our platform loans – whichever is soonest.
You will also effectively waive any remaining cancellation period should we receive a transfer in from another of your ISA providers during the first 14 days. If you change your mind after your cancellation period has expired, we would follow the withdrawal and/or transfer out process(es). This would still count as the one IFISA you are allowed to subscribe to for the year unless you have never subscribed or you transfer out all current year subscriptions to another IFISA provider in the same tax year you opened the Lendwise IFISA – then that becomes your one for the year.
Remember – For more information about the Lendwise Innovative Finance ISA please take a look at Lendwise ISA Terms and Conditions.
As with all peer-to-peer loans, our products place capital at risk. You may not get back the full amount you lend and/ or the interest you expect. Loans are made to individuals over a period of up to 10 years and as such, loans can be illiquid. The tax treatment of interest and reliefs on defaults may be subject to change and tax treatment will depend on your individual circumstances. Any reference made to past performance or forecasted performance of interest rates is not a reliable indicator of future performance. Lendwise Ltd, trading as Lendwise, does not provide investment or tax advice, and information on this website should not be construed as such. You should consider seeking independent tax and financial advice before making a peer-to-peer loan.