Peer-to-peer Isa fails to take off

5 September 2017

Peer-to-peer Isas failed to gain much popularity in their first year, with just 2,000 Innovative Finance Isa (IF Isas) accounts opened in the tax year 2016/2017, according to the latest statistics from HMRC.

Launched by former chancellor George Osborne in 2015, the Innovative Finance Isa or IF Isa is a tax wrapper for peer-to-peer lending. Peer-to-peer lending allows individual investors to be matched with borrowers via a third-party platform, cutting out middlemen such as banks.

Investors – that is, those offering to lend through the platforms – typically receive over 5% return per year, depending on the length and size of their loans, according to the investment bank Liberum and data provider AltFi Data.

However, since its launch in April 2016, the IF Isa has faced trouble getting off the ground.

The biggest problem is that many peer-to-peer platforms have struggled to gain approval from regulators to become IF Isa providers. There are currently around 60 firms that have received approval from financial regulators, with most of these only starting to operate within the past few months.

Even some well-established peer-to-peer firms have only recently gained regulatory approval. Zopa, one of the UK’s most established platforms, was only given authorisation to offer IF Isa products starting from June 2017.

The Financial Conduct Authority has previously expressed concern over peer-to-peer platforms, last year warning that some were not being transparent about lender’s loans.

Across the 2,000 IF Isa accounts opened, £17 million worth was subscribed. The average subscription per account was £8,500 – about the same as the average stocks and shares Isa account subscription.

Peer-to-peer platform Abundance claims it sold the majority of IF Isas in the last tax year. It says 1,436 Abundance IF Isas were opened, representing 72% of all IF Isa products opened last year.

Isa use as a whole in decline

Overall, the amount held in Isas in 2016/17 fell to £61.5 billion, compared with £80 billion the previous tax year. This decline was largely driven by a steep fall in the amount held in Cash Isas. In 2015/16, a total of £58.7 billion was held in Cash Isas; in the latest tax year this fell by a third to £39 billion.

This decline in Cash Isa holdings is likely driven by rising inflation, prompting savers to seek out better protection for the value of their money.

The amount held in Stocks and Shares Isas edge up slightly, rising from £21.1 billion to £22.2 billion, reflective of the current bull market in UK equities and continuing poor value from Cash Isas.

This article was written for our sister magazine Money Observer.


In reply to by anonymous_stub (not verified)

I tried to open an IFISA with Ablrate, but one of the hoops to jump through was to have a separate email address for communications wrt said ISA. Maybe I'm just getting old, but the idea of juggling different email addresses on top of all the other bits and bobs ( E.g: multiple passwords of increasing complexity ) required, for everything from sorting your tax to buying a train ticket, these days, was a bridge too far. Crowdstacker is less adminstratively convoluted, but the chance of buying any loans on the secondary market is dependent on whether you are browsing your inbox when the offers come in, given that they are taken up in minutes.

In reply to by anonymous_stub (not verified)

I opened an ISA with Zopa as an existing customer. All went well and I am earning tax-free interest. Due to volume of demand (Zopa) statement they have had to delay the transfer on existing non-ISA Zopa funds but hope to do so soon.

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