It’s almost here! The Innovative Finance ISA – or IF ISA – will be introduced on 6th April 2016 and we want to take this opportunity to let you know how the Zopa IF ISA is going to work.
What is the IF ISA and why should I be interested?
Firstly, ISAs are great because they allow you to earn interest tax-free. Today, there are two types of ISA to choose from: Stocks & shares ISA and Cash ISA. From 6th April peer-to-peer lending platforms with a full FCA licence will be able to offer customers a new type of ISA, the Innovative Finance ISA, allowing customers to earn tax-free interest on all loans which are purchased within an IF ISA wrapper.
Secondly, Cash ISAs generally offer low rates of interest (average 1.17% in January 2016) and stocks and shares investments are typically quite volatile. In the IF ISA the rates of return will be higher than a typical Cash ISA, however it is important to remember that as peer-to-peer lenders are not banks, your capital is at risk and your investments are not covered by the Financial Services Compensation Scheme.
Finally, you don’t need to choose just one type of ISA. From 6th April 2016, you’ll be able to fund up to three ISAs for the new tax year – one of each type, up to a combined amount that is within the new annual limit of £15,240. As long as you don’t close your ISA, you can carry forward your tax-free savings balance each year and earn tax-free interest on even more of your money.
What will be so great about Zopa’s Innovative Finance ISA?
Great rates: Zopa will be offering customers the same great rates on the IF ISA as it does on its standard products – we’re not going to introduce any additional fees or charges.
Flexible: Zopa’s IF ISA will be flexible – if you need to access your money from Zopa, you won’t lose your annual tax-free allowance.
Flexible ISAs are a new ISA feature being introduced on 6th April 2016. Flexible ISAs will allow customers to withdraw funds from an ISA subscription without impacting their annual limit. For example: if you invest £15,240 and withdraw £5,000 from a flexible IF ISA, you could then put another £5,000 in at a later date within the same tax year, which would still earn tax-free interest. In a non-flexible ISA, that tax-free allowance would be lost.
Transfers In: For those of you who have been building up your tax free savings allowance over the years, you’ll be able to transfer all or part of those balances over to an Innovative Finance ISA with Zopa. We hope you’ll bring your existing balances over to us, and earn even greater rates!
When and how will I be able to fund an Innovative Finance ISA?
FCA Regulation: All peer-to-peer platforms need full regulatory permissions and an ISA manager status to offer the new IF ISA. We are working with the FCA to secure our permissions, which we expect to receive in the coming weeks, so that we can launch our ISA at the very start of the new tax year, on 6th April.
Wrapping existing Zopa loans: To fund your ISA, the regulations state that only cash can be put into an ISA account, not assets. We’re working with HMRC and other lending platforms to work out the process for how existing lenders can get the full benefits of the ISA wrapper.
Excited about the Innovative Finance ISA? To get updates and be the first to know when the Zopa IF ISA launches, stay tuned for future blog posts and sign up to our mailing list here.