Introducing a third ISA: What does it mean for Funding Circle investors?

Funding Circle’s new Innovative Finance ISA can be found here

Last week, during the Summer Budget 2015, the Chancellor confirmed a third ISA, the ‘Innovative Finance ISA’, which will allow lending through marketplaces such as Funding Circle to be held within an ISA from 6th April 2016. This is fantastic news for investors who will soon be able to lend up to £15,000 per year tax free.

Funding Circle co-founder James Meekings said the “inclusion of peer-to-peer lending within ISAs is a pivotal moment for our industry.”

The change follows HMRC’s consultation earlier this year, and is another sign that lending through marketplaces is becoming a mainstream way for individuals to earn attractive returns on their money. We calculate that if just 3% of ISA money is channelled through Funding Circle, it would create £1.5 billion of new lending to small businesses annually, creating 75,000 new jobs.* This ISA will sit alongside the traditional cash ISA and stocks & shares ISA as a third option.

What does this mean for investors?

This third ISA will give investors more flexibility and allow for a higher level of diversification, as you will be able to choose how best to allocate your £15,000 ISA limit across the three types of ISA.

It will also mean that Funding Circle can become an ISA manager. With Funding Circle as an ISA manager, you will be able to own all of your investments yourself, rather than investing through a third party ISA manager. This will give you greater control over your investment and keep you closer to the small businesses you lend to, as well as allowing you to avoid paying additional fees to an intermediary.

When and how do I start using my ISA allowance?

Further information about how the ‘Innovative Finance ISA’ will work in practice will be published later this year, including whether investors will be able to transfer existing investments into the new ISA. We will keep you up to date with any developments on the blog, however our recommendations to the Treasury on how the ISA should work can be found in our Lending ISA blog post.

Will you be taking advantage of the new ISA from April next year? Let us know your thoughts below.

*Independent research by government think tank Nesta found that businesses that receive a loan through Funding Circle employ on average 11 people, and see an average increase in employment of 27 per cent after receiving finance.

Rob McCorquodale


22 thoughts on “Introducing a third ISA: What does it mean for Funding Circle investors?

  1. Will Innovative ISAs be limited to 1 provider? i.e. Can I have one with Ratesetter and Funding Circle? or just Funding Circle?

    Many of my investments are spread over multiple providers.


    • I would answer your question with another question – Is there a provider that allows you to invest multiple bank’s cash ISA’s in the same year ?

      No there ain’t one.

      • I appreciate what you are saying but no harm in asking

        Can you buy more than 1 share type in a stocks and share ISA?

        I know this is a Government initiative but just maybe someone has thought about it. We, as consumers, are constantly told to spread our risk.

        Adj. innovative – being or producing something like nothing done or experienced or created before; “stylistically innovative works”; “innovative members of the artistic community”; “a mind so innovational, so original”

  2. Can I move my existing loans into any ISA i set up? Or will this just be for new lending. Being able to ‘sell’ my loans to my ISA would be a real benefit.

  3. This is an attractive option for savers. Interest rates on cash are so paltry that the tax “saving” in a cash ISA are near-negligible. Many folk consider stocks overvalued. However, my biggest concern would be: if there is a tsunami of ISA funds into P2P, are there enough businesses around who could generate a return on those funds?

  4. I’m
    not sure this is good news for investors.
    Being able to invest in P2P via an ISA will result in much more money
    flooding in, which by the basic rules of supply and demand, will reduce the
    interest rates that investors achieve.

    • I thought that – BUT those same rules of supply and demand might mean that more businesses will look to P2P for their funding, this at least partially driving rates a bit higher.

      • I think if funding circle had a site with a searchable database of businesses who have used fc so the fc community can consider using them. That would be an incentive for businesses to use fc.

  5. I am very pleased that last FC can be included in an ISA, BUT hasn’t the Chancellor announced that everyone will have a tax-free interest allowance of £1000 from April 2016, so doesn’t this make most people’s ISAs irrelevant because we will be earning less than £1000 in interest anyway?

    • Because the 1000 is only for basic rate tax payers. 500 for higher rate. Also if you invest 15000K in an isa it’s in a tax free situation for life of the ISA so in 10 years it’s still tax free. the 1000 you can earn is tax free when earnt but then not in a wrapper. Long term ISA is a better tax efficient wrapper.

  6. Good news for people with simple tax affairs. Funding Circle is the only organisation i have that doesn’t deduct tax at source so I have the hassle of dealing with the tax-mans estimates, ISA will avoid this.

    • If you are currently using FC, you should be doing a self assessment return (receiving money without deduction of tax), so no estimates.

      • I agree, I’m talking about the adjustment they make to Tax Code, which is invariably wrong, then corrected by the SA return, then collected by the next year’s code, all rather messy.

        • Actually correction can be made by either paying the short fall, or getting a refund. I have done this many times.

  7. Will Funding circle provide an easy way to migrate funds from a non-ISA investment into the ISA version? Transferring repayments/interest as it happens perhaps?

  8. Good news on the tax free front but this will bring a lot more investment and without the business needing the loans could seriously reduce interest rates

  9. Great news about the ISA,I don’t think there will be anything to worry about as regards the interest rates going down because when the banks put the interest rate up businesses will have to pay the going rate. If it is not worth the risk people wont invest.

  10. Thanks for getting in touch. The third ISA has been announced and will open in April 2016, however at this point details of how it will work in practice are yet to be released. We are engaging with HMRC on the details and will update you with further information as soon as we have news to share.

    It has not been decided as to whether existing loan parts will be able to be transferred into an IFISA wrapper, for example, but we believe that this is the most sensible approach. We can confirm the ISA will come into effect at the same time as the Personal Savings Allowance, further information about the change can be found in our Talking Tax blog :

  11. I don’t think current investors should worry about interest rates for lenders falling if more money comes ‘flooding in’ once P2P ISAs are available. It should, if promoted effectively by FC, attract more borrowers. This will grow the total loan base and enhance the perception of FC as a mainstream source of business lending.

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