Individual Savings Accounts (ISAs) for managers: Innovative Finance ISAs
Guidance for ISA managers about qualifying investments for Innovative Finance ISAs.
Innovative Finance ISAs can be offered by eligible ISA managers to investors who are 18 or over.
HM Revenue and Customs will consider your application if you’ve been granted equivalent eligibility under the law of a territory outside the UK that is within the European Economic Area (EEA).
Qualifying investments that you may purchase, make or hold in an Innovative Finance ISA, are:
- peer-to-peer loans
Peer-to-peer loans are eligible if they’re arranged by an operator who is authorised within:
- Section 31(1)(a) or (c) of, or Schedule 5 to, the Financial Services and Markets Act 2000
- Chapter 4 of Part 8 of the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No 2) Order 2013
- Articles 36H (operating an electronic system in relation to lending) and 39G (debt administration)
Where a borrower defaults and the loan is assigned or novated in exchange for payment(s) to the lender, the payment(s) will not be made under an Article 36H agreement. They will be eligible to remain in the ISA wrapper, provided the loan was an Article 36H agreement when the lender entered into it.
All loans must be made using cash held by you, and must:
- be entered into for general commercial reasons
- not be part of a scheme or arrangement where the main purpose, or one of the main purposes, is tax avoidance
Peer-to-peer loans held outside of the ISA wrapper can’t be sold, and repurchased inside an Innovative Finance ISA. The exception is where the loans are sold and are made available for purchase, using cash held by you, at the same price, by any lender in the open market.
The loans must be available for purchase by more than one prospective purchaser. It won’t usually be open to a platform to purchase a lender’s portfolio of loans and for the proceeds to be used to reacquire the same loans inside the ISA wrapper. Any purchase would need to be of loans made openly available to any prospective lender.
An investor’s cash subscription and any other cash held in an Innovative Finance ISA is held only in sterling and must be deposited in:
- an account with a deposit taker
- a deposit account or a share account with a building society that is designated as an ISA
In practice, you can operate a single account, which may also hold other savings products, such as Cash ISA, feeder fund and current account balances, provided the:
- account is designated as an ISA account
- monies relating to each investor’s ISA are recorded and can be accounted for separately
Transfer and withdrawals
Transfer and withdrawal rights in relation to non-cash Innovative Finance ISA investments are available only as set out in the terms and conditions of the account.
Payments when a loan defaults
When peer-to-peer loans default, you can allow access to a provisions fund to compensate lenders. Alternatively, the loan may be ‘paid up’ or purchased from the lender, where the loan is taken on by you or a debt collection specialist.
You can use the compensation to purchase qualifying investments, if the compensation is received because of:
- poor performance
- losses - in whole or part
- depreciation or risk of depreciation
Where this compensation is received outside of the ISA wrapper the investor will be able to make a defaulted investment subscription.
This applies whether or not the qualifying investment continues to be held in the ISA at the time the payment is made.