Glossary · UK
What is Innovative Finance ISA (IFISA)?
A type of ISA that allows peer-to-peer loans and certain debt-based crowdfunding investments to be held tax-free, sharing the overall 20,000 pounds annual ISA allowance with Cash and Stocks and Shares ISAs.
Full Definition
An Innovative Finance ISA (IFISA) is one of the four main types of Individual Savings Account available in the UK, designed to hold peer-to-peer (P2P) loans and certain debt-based securities issued through crowdfunding platforms, with any interest or returns earned sheltered entirely from Income Tax and Capital Gains Tax. Rather than lending money to a bank or building society in exchange for interest, as with a Cash ISA, an IFISA investor's money is used to fund loans to individuals or businesses via an FCA-regulated P2P lending platform, or to buy debt securities such as mini-bonds, with returns depending on the borrowers repaying as agreed. The IFISA shares the same overall annual ISA allowance (20,000 pounds for 2026/27) as Cash ISAs, Stocks and Shares ISAs, and Lifetime ISAs, so money paid into an IFISA reduces the amount that can be paid into other ISA types in the same tax year, though savers can hold all four types simultaneously and split contributions between them as they choose. Unlike a Cash ISA, capital held in an IFISA is not covered by the Financial Services Compensation Scheme in the same way -- P2P lending carries genuine credit risk, since returns depend on borrowers repaying, and a borrower default can mean an investor loses some or all of the capital lent, even though the IFISA wrapper itself protects any returns from tax. Because of this risk profile, IFISAs generally offer higher headline interest rates than Cash ISAs, often in the range of 4% to 8% or more depending on the platform and the risk category of loans selected, compensating investors for the greater risk of borrower default and, in some cases, limited platform liquidity if an investor wants to withdraw funds before loans mature. Providers are required to give risk warnings, and many platforms operate a "provision fund" to cover some borrower defaults, though this is not a guarantee. Savers considering an IFISA should treat it as a higher-risk alternative to a Cash ISA rather than a direct substitute, and should diversify across multiple loans or platforms rather than concentrating an entire ISA allowance with a single borrower or provider.