What is an Innovative Finance ISA (IFISA)?

What is an Innovative Finance ISA (IFISA)?

The UK Government has introduced the “Innovative Finance ISA” or “IFISA” to provide investors with tax free returns on peer 2 peer lending investments.

Peer2Peer lending connects investors (or “lenders”) directly to borrowers, cutting out he banks and allowing investors to receive higher returns than they would in a traditional cash isa.

Billions of pounds have been lent through Peer2Peer lending so far. 

How does it work?

Lenders (investors) choose the type of borrower they wish to lend to, what level of return they want, and can spread their risk by lending to multiple borrowers all at the same time.

As Peer2Peer lending is an investment it is not currently covered by the Financial Services Compensation Scheme (FSCS) and investors capital is at risk, however, the sector is regulated by the Financial Conduct Authority (FCA) and many providers secure investment capital against company assets to protect investors in the event of defaulting on repayment.

Investing via an Innovative Finance ISA also provides much needed support to the UK’s 5.2million small and medium sized businesses, many of which have found it difficult to secured funding through traditional banking routes.

Investments in IFISAs can provide attractive fixed annual returns whilst benefitting from being tax free.


It is always important to note that IFISAs are NOT the same or similar to cash ISAs.

Cash ISAs are effectively instant access savings accounts which are tax free. They provide relatively modest rates of interest however they ARE protected by the Financial Services Compensation Scheme (FSCS) up to £85,000. They provide security and instant access to your money should you need it.

IFISAs are investments and the capital invested is at risk without any FSCS cover.

IFISAs may be suitable for eligible investors whom would wish to invest a proportion of their money tax free, however it should be considered as part of a larger investment portfolio.

Clarion Invest is providing this post for information purposes only and is not to be construed as advice, inducement or any form of financial promotion. Investments of any kind carry risks and should only be entered into after significant due-diligence has been conducted. If you are unsure about any investment you should enlist the services of an appropriately authorised professional.