Draft Legislation to Include Bonds and Debentures in IFISA

Draft legislation published by HMRC on Tuesday 9th August 2016 has stated the Treasury’s intention to include other forms of debt-based finance within the Innovative Finance ISA.

This amendment to the IFISA is currently under consultation, and is targeted for inclusion on November 1st 2016. As it stands, the Innovative Finance ISA (also referred to as a ‘peer to peer ISA’) provides a tax shelter only to those involved in peer to peer lending. Last year the former Chancellor, George Osbourne, announced the government’s plans to include other debt-based securities in the IFISA – in particular bonds and debentures – which this draft legislation aims to make concrete. By opening up the IFISA to other forms of debt-based crowdfunding, the government hopes to make capital more readily available to UK SMEs.

The Innovative Finance ISA was launched on April 6th 2016 to provide tax benefits for investors lending through peer to peer platforms – however the IFISA has been slow off the mark. Many of the major peer to peer lending platforms are still awaiting full FCA authorisation before they can begin offering the ISA to their customers.

While returns for those invested in debt-based securities can be high, the risk is also higher than other forms of investment, and as such they should not be considered as direct substitutes to the more ‘traditional’ Cash ISA accounts. More information on peer to peer lending risks can be found here.