Millions of the Britishers are unaware of IFISA, even 3-years after the tax wrapper was released. According to research, only 8% of Brits know what an Innovative Finance ISA is which means that almost 45.9 million have never even heard about it. If people who save are to get the best returns, then they need to become aware of tax-efficient investment choices open to them. In the tax year of 2017/2018, only 31,000 individuals opened an Innovative Finance ISA account, compared to 2.8 m who opened a stock and shares ISA and 7.7 m who added their money to a cash ISA.

 However, regardless of the popularity of the mainstream ISA, according to research only 24% of the UK adults have never heard of cash ISA and almost half have never heard of stocks and shares ISA. Innovative Finance ISA can provide significant returns. This gives those with even £1,000 or £3,000 the opportunity to put their savings into an area which used to be the land of investors with great amounts to save.

How the Innovative Finance ISA works and what do investors and platforms have to beware of?

Just like other kinds of ISAs the Innovative Finance ISA allows people to earn tax-free £20,000. Majority of peer to peer lenders provide IFISA with their mainstream products. However, also there are providers which let the investors back their loans from the variety of platforms within one tax wrapper.

The Innovative Finance ISA is one of the peer-to-peer sector’s major marketing tool since it can influence mainstream awareness of the ISA the product to bring in light the inflation-beating returns on offer which is now with the additional advantage of earnings tax-free. The Innovative Finance ISA market is always changing which potentially gives investors a lot of flexibility.

Two most common aspects for the investors to consider while selecting a new product are the return on the investment and confidence that they have in the underlying investment and Innovative Finance ISA provider. The IFISA does not do anything unusual, it's only a wrapper which buffers the money from tax. It does not add anything to the underneath the product.

ISA transfers

There are some peer-to-peer platforms accept ISA transfers which mean that investors can transfer the old stocks and share or cash ISAs into an Innovative Finance ISA. The money from ISA can be transferred from previous tax years or old accounts without needing to transfer the entire amount. However, if you move assets invested in the current tax year then you will need to transfer everything. There might be charges with exiting the accounts early, for example, a fixed term cash ISA. Users must fill an ISA transfer form with the new provider that will provide specifics of the amount being transferred along with their national insurance number and other personal details.

In a few cases, the investors might have to print the form, sign it and post it back, it can delay things. However, there are some providers who do this electronically. Peer to peer lender Kuflink IFISA has recognised the bother of transferring money which discourages some investors from transferring the old ISA cash into an Innovative Finance ISA. Hence it intends to make the procedure as easy as possible.

With Kuflink simply make a Kuflink account, fill out an online transfer form and they will arrange it with their current provider. they still require a physical signature from the customers, however, the rest of the procedure is completely remote for the investors. Usually, the ISA transfers take up to fifteen days and the stocks and share up to thirty days. Also, it is important to ensure that you transfer your ISA funds directly, instead of withdrawing your cash and then trying to transfer them because you might lose your tax allowances.

How to hold an IFISA?

An investor can hold only one active Innovative Finance ISA during a single tax year. But, they can open Innovative Finance ISAs with another peer to peer platforms only to transfer old ISA cash from the previous years. Although an investor wouldn’t be capable of putting any non-ISA cash into these accounts.

If someone invests in small business lending on one p2p platform then they won’t be capable of investing in property or consumer loans or even through other small business lending platforms. It is better to see more Innovative Finance ISA providers which allow you to select and pick which platforms’ investment products you put into your Innovative Finance ISA portfolio. There are some platforms which create portfolios that consist of peer to peer loans from different providers select on behalf of the investors.

Existing Peer to Peer loans

Technically the existing peer to peer loans can’t be transferred into an Innovative Finance ISA. The investors can’t trans loan parts from one product to another directly since the ISAs need to be opened with cash. However, there are platforms which have worked out means to allow users to move their money, either by relaxing interest reimbursements or by selling off their loans and then investing the money into the IFISA tax wrapper.

 For instance, the platform Landbay allows investors with cash balance more than £5,000 in their Classic peer to peer account to transfer their cash into an Innovative Finance ISA account. All the investors need to do it request the transfer for cash and give their national insurance number along with signing the needed declarations. If their cash is invested in the Landbay loans already, then they will need to first sell these parts of loan via the secondary market, then request the transfer.

While the Innovative Finance ISA market has seen a lot of progress over the past year, still there is a lot of untouched potentials. Expectantly as the investors understand the products more, this way IFISAs popularity will rise, and the Innovative Finance ISA will emerge finally as a practical choice and complement to stocks and shares and cash ISAs.