Innovative Finance ISA (IFISA)
An ISA wrapper for peer-to-peer lending and debt-based investments. Returns from qualifying P2P platforms are sheltered from income tax within the ISA rules.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
You open an IFISA with a qualifying P2P platform and lend money to borrowers. The interest you receive is tax-free within the ISA wrapper. Loan terms vary and your capital is at risk if borrowers default.
Tax Treatment
Interest and returns from qualifying P2P loans within the IFISA are free of income tax. Capital is at risk as P2P loans are not FSCS-covered.
Tax Advantages
- Interest from P2P loans is completely free of income tax
- Returns typically higher than Cash ISAs while still tax-sheltered
- Does not use your Personal Savings Allowance
Who Is This Suitable For?
Experienced investors seeking higher returns than a Cash ISA who understand peer-to-peer lending risks.
Worked Example: Lending £10,000 through an IFISA
- 1You transfer £10,000 from an old Cash ISA into an IFISA; a transfer uses none of this year's £20,000 allowance.
- 2The platform spreads it across dozens of loans advertised at 7%, so gross interest in year one is £700.
- 3Two borrowers default with nothing recovered, costing £200 of capital (an assumption for illustration).
- 4Your net return is £500, or 5%, all free of income tax inside the wrapper.
Result: The tax saving only helps if the return after defaults and fees beats what a Cash ISA pays with full FSCS protection.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- Loan interest is sheltered even for additional-rate taxpayers, who have no Personal Savings Allowance at all.
- Returns come from borrower interest rather than stock markets, which can diversify a share-heavy portfolio.
- Transfers in from other ISA types are allowed, so old balances can be moved without losing allowance.
Drawbacks
- Peer-to-peer loans are not FSCS-covered, so a platform failure or widespread defaults can wipe out capital.
- Money is tied to the loan terms, and secondary markets can dry up exactly when everyone wants out.
- Several UK platforms have closed to retail investors in recent years, leaving lenders waiting years for loans to run off.
- From 6 April 2027 transfers from an IFISA into a Cash ISA will no longer be permitted.
Notes for Limited Company Owners
An IFISA is a personal wrapper, funded from dividends or salary already drawn, not from company cash. Loans to a borrower you are connected with, such as your own company, are not permitted inside the wrapper, so it cannot be a tax-free way to lend to your business.
Common Mistakes
- Treating the advertised rate as the return you will actually receive, before defaults, fees and idle cash.
- Concentrating the whole ISA in one platform or a handful of large loans.
- Not checking the FCA register to confirm the platform is authorised for peer-to-peer lending.
Who Should Avoid It
Anyone who cannot afford to lose the capital or may need it at short notice; cautious savers get most of the tax benefit from a Cash ISA with none of the credit risk.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Calculators
Frequently Asked Questions
Is my money safe in an IFISA?
IFISAs are not covered by the FSCS. If borrowers default, you could lose capital. Most platforms have provision funds but these are not guaranteed.
Can I transfer from a Cash ISA to an IFISA?
Yes, you can transfer existing ISA funds without using your annual allowance.
How are IFISA returns taxed on withdrawal?
Withdrawals are completely tax-free, just like any other ISA.