The Innovative Finance ISA (IFISA) is an Individual Savings Account for the crowdfunding industry, specifically peer to peer lending (P2P). This new tax wrapper was launched April 2016 and allows investors to hold peer to peer loans, crowdfunding debentures and cash. Interest earned is free from taxation.
Since April 2016, over 25 P2P platforms have launched their respective IFISAs onto the market with dozens more non-P2P providers following suit. To offer an IFISA, a P2P platform must be fully FCA authorised and approved as an ISA plan manager by the HMRC.
ArchOver is one of the latest major peer to peer lending platforms to offer the Innovative Finance ISA. We explore their ISA below.
General Innovative Finance ISA Rules
- UK taxpayers aged 18 or over are eligible to open an IFISA
- Annual ISA allowance of £20,000 applies (for tax year 2018-19)
- Only one IFISA per tax year can be subscribed to with current tax year subscriptions
- Old cash and stocks & shares ISA subscriptions can be transferred to multiple IFISAs*
- Annual tax year allowance (£20,000) can be divided between different ISA types (cash, stocks & shares, IFISA) at the investor’s discretion
- Existing loans at a P2P platform cannot usually be transferred into an IFISA, they must be sold before the cash can be reinvested in loans via an IFISA
*To transfer current tax year subscriptions from an IFISA, investors must transfer the full value of subscriptions.
*To transfer old ISA subscriptions, for example from an old cash ISA, investors can transfer the full or partial value of subscriptions.
ArchOver ISA Overview
The ArchOver Innovative Finance ISA (ArchOver ISA) allows ArchOver investors to lend to individual businesses via a tax-efficient ISA wrapper. This means investors earn the same returns, without having to pay tax on them.
The ArchOver ISA launched in May 2018 and is open to existing ArchOver investors as well as new investors.
Investors may invest ISA subscriptions into a loan via their ArchOver ‘ISA Wallet’ and may also invest in the same loan with funds held in their ‘Primary Wallet’. Investors may also transfer between their ‘Primary Wallet’ and ‘ISA Wallet’ by making a request in writing; ArchOver will then process the transfer.
If an investor exceeds their annual ISA subscription limit, ArchOver will be alerted. Any surplus funds – known as “repaired funds” – are transferred to the investor’s ‘Primary Wallet’ to ensure the investor does not exceed their ISA limit.
ArchOver ISA Investment Details
All loans listed on the ArchOver platform are eligible to be held within the ArchOver ISA. This means investors can invest in loans which are assigned to any of the investment models.
Table 1: ArchOver ISA Investment Details
* Important note on ISA closure: If an investor subscribes to their ArchOver ISA during the tax year and then closes the account, but does not arrange for the subscriptions to be transferred to another ISA provider, then they will not able to subscribe to another IFISA in the same tax year.
Important note on investor death: ISA tax exemptions will no longer apply in the event of the investor’s death. Any interest or gains made on ArchOver investments between the date of death and the date of the ArchOver IFISA being closed will not be exempt from tax.
Here is an infographic illustration of investing through the ArchOver ISA. All lending and repayments occur through the investor’s ISA.
Figure 1: ArchOver ISA Investment Process
How to Invest
Opening an ArchOver Innovative Finance ISA is fairly straightforward. Investors submit an ISA application, registering an ISA e-wallet with Mangopay (ArchOver’s 3rd party Payment Services Provider) and then select loans to invest in. ISA funds are held separately from an investor’s ArchOver ‘Primary e-wallet’ in an ‘ISA e-wallet’, managed by Mangopay SA.
The process of registering an ArchOver ISA varies slightly depending on the investor’s account status with ArchOver (see below).
Important: National Insurance number is required to submit an ISA application.
STATUS: Existing ArchOver Investor
Existing ArchOver investors do not need to re-register an account with the platform, but will be required to submit an ISA application to open an ArchOver ISA. This can be done once logged in.
STATUS: New ArchOver Investor
New investors can register an ArchOver ISA during the account registration process. They will be required to submit an ISA application and fund their ArchOver account with the minimum £1,000 before they can allocate funds to their ISA.
How to Withdraw
Investors are repaid tax-free interest into their ISA e-wallet, their principal will typically be repaid at the end of the loan term. The interest can be withdrawn without affecting an investor’s ISA subscription limit. Investors should, however, be prepared to commit their principal for the duration of the term as there is no secondary market to sell their committed funds to another ArchOver investor enabling them to withdraw cash.
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ArchOver has evolved significantly in the past year, introducing new investment models to cater to their expanding investor-base. The platform’s loan book has increased to over £74 million cumulatively lent all-time, with a range of sectors available to invest in. For investors, they benefit from the diverse range of loans available, enabling them to curate their own portfolios in line with their own investment strategies. Moreover, with the introduction of the ArchOver ISA, returns can be earned tax-free. All loans available through the ArchOver platform are eligible to be held in ArchOver’s Innovative Finance ISA.