Introduced April 6th 2016, the Innovative Finance ISA (IFISA) is a tax-efficient ISA wrapper which allows peer-to-peer investments to be held in an Individual Savings Account (ISA). This means investors are not required to pay tax on the income generated from their investments.

Open an IFISA online with one of the eligible P2P providers (also ISA plan manager) and then select the P2P investments you want to invest in.

The ISA subscription limit for tax year 2017-18 is £20k. This can be subscribed entirely or proportionally to an IFISA, with the remaining allowance held in the other ISA types, typically Cash and Stocks & Shares. You cannot subscribe more than the annual allowance in a given tax year.

There are three main ISA types: Cash, Stocks and Shares and Innovative Finance ISA. You can spread your annual tax year allowance of £20k (2017-2018 allowance) between these ISAs however you wish..

Fully FCA authorised and HMRC ISA plan manager approved providers can offer IFISAs. Most peer-to-peer lending providers operate under interim permissions, meaning they must be granted full authorisation and be approved as an ISA plan manager before they can offer Innovative Finance ISAs. Review the Orca IFISA tracker tables for clarification on a P2P provider’s status.

To be eligible to invest in an IFISA you must: - be aged 18 or over; - be resident in the United Kingdom, or if not a resident be performing duties as a Crown employee serving overseas and paid by public revenue of the United Kingdom (typically a serving member of the armed forces, or a diplomat), or be married to, or in a civil partnership with, such a person; - not have exceeded the overall subscription limit which is £20k for 2017/18. You will need your bank account details and National Insurance number to activate your IFISA, before depositing funds and investing in the peer-to-peer investment(s) of your choice via the P2P lending provider; - not have subscribed to another ISA of the same type in that tax year, otherwise than by way of additional permitted subscriptions, flexible ISA replacement subscriptions, defaulted cash account subscriptions to a cash ISA, and Help to Buy ISA reinstatement subscriptions.

ISA Guidelines stipulate that you may only subscribe annual allowance subscriptions to one Innovative Finance ISA per tax year. This means some, or all, of your annual allowance of £20k (2017/ 2018) can be subscribed to only one IFISA within the 2017/ 2018 tax year. The same rule applies to a Cash ISA and a Stocks and Shares ISA.

You can transfer current tax year ISA subscriptions from any ISA type to an Innovative Finance ISA. These subscriptions must be within the tax year allowance of £20k. If you are transferring out of a current IFISA, you will need to liquidate your P2P investment in order to withdraw and transfer. You can transfer unlimited ISA subscriptions from any previous years’ ISAs. Again, any ISA type qualifies.

You will only be able to transfer from your IFISA providing you can liquidate your P2P investments into cash. Some P2P providers can facilitate the sale of your P2P investment to another investor, however some P2P providers do not offer this service. This process will be determined between you and the P2P provider acting as your ISA plan manager.

Peer-to-peer lending is not considered a liquid asset class. Some P2P providers offer early access features where you can liquidate your assets by selling your investment to other investors. Liquidating your investment to cash is important so you can withdraw from your IFISA or to transfer subscriptions to a new IFISA. This process will be determined between you and the P2P providers acting as your ISA plan manager (unless a 3rd party provider is your plan manager, where you are still required to coordinate the sale of the investment).

Peer-to-peer lending became regulated by the UK Financial Conduct Authority (FCA) in 2014. Most major platforms operate under interim-permissions, but the FCA is currently in the process of fully authorising P2P providers.

No. Peer-to-peer lending is not covered by the FSCS. P2P providers employ strict security measures, so should a borrower default on their loan, the P2P provider will attempt to recover your capital (and interest if possible). There are no guarantees, however. Your capital is at risk.