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Why You Might Be Missing Out On Instant IFISA Diversification
Update in 2024: the information below only applies up to 5th April 2024. After that, it becomes even easier to lend in multiple IFISAs. For the rules from 6th April 2024, read the The Peer-To-Peer IFISA Guide.
We have a guide on 4thWay that shows how you can open as many IFISAs as you want in the space of a few months, saving you on tax and helping you spread your money very quickly. But you might have to educate someone to do it. Because you can't be certain everyone working at each P2P lending company understands IFISAs completely. Here's why and how…
Yes, you can!
Contrary to very popular opinion, the ISA rules don't limit you to opening and lending through just one new IFISA per year, as many people believe.
You're just limited to putting new money you contribute within your annual limit (currently £20,000) to one IFISA, until the next tax year. If you already have money in another IFISA from a prior tax year – or, indeed, in different types of ISA, such as cash or shares ISAs – you may split existing cash from those into as many freshly opened IFISAs as you want. All on the same day, if you want.
Our guide says more on that, showing you how and why it works, as confirmed to 4thWay by HM Revenue & Customs. It's called How To Lend Across Multiple IFISAs In One Year!
You might need to put your teacher's hat on
However, just because it's true, it doesn't mean that everyone understands it. This applies equally to people working at the P2P lending companies.
We had an email from a 4thWay user who was unable to open a second IFISA. He was rejected. After we explained how and why he was allowed to do so, he got back in touch with them. They agreed then that he was indeed allowed to open an IFISA, even though he had already opened one this tax year. He'll be transferring in existing IFISA money to this second IFISA of the year.
I thought the email exchange between the 4thWay user and ourselves could be useful for you. It might help you teach P2P lending companies understand how IFISAs work, should you have the same difficulties!
Here's the email exchange, in chronological order. It's just three emails. If you can't be bothered to read them all, skip to the three-sentence “bottom line” at the end of this page.
First email to 4thWay from a lender opening an IFISA
I am (or was) intending to open an IFISA with Proplend* in the next few days, but they have informed me that because I have already invested ‘new' money in another IFISA (with Loanpad*) in the current tax year, I am not allowed to open an IFISA with them until the next tax year. I made it clear to them that the monies I would be investing in their IFISA would be by means of a partial transfer from an existing IFISA (with Funding Circle). I have not invested ‘new' money in any IFISA other than the Loanpad IFISA in the current tax year.
This does not tie in with my understanding of the rules, which is based on the 4thWay article titled ‘How To Lend Across Multiple IFISAs In One Year!‘, which states:
“You're actually allowed to open lots of Innovative Finance ISAs in one tax year. The rule is that you're not allowed to put new money into more than one IFISA.”
Could you confirm that Proplend's interpretation of the rules as described above is incorrect?
Note that in order to apply for a Proplend IFISA, you have to declare the following (which is pretty vague, considering that the term ‘subscribe' could cover ‘new' money, transferred funds, and even just opening an IFISA without yet commiting any funds):
“I have not subscribed and will not subscribe to another IFISA in the same tax year that I subscribe to this IFISA.”
A 4thWay user
Hi 4thWay user
You have interpreted it right, but that doesn't mean that:
a) Proplend understands the rules – as, to be fair to them, it took a great deal of effort on our part to confirm the rules with HMRC and elsewhere, or that
b) Proplend chooses to implement that level of flexibility.
I suspect it's a) holding you back.
If you are not paying new money into the Proplend ISA before 6th April 2022 then you are not subscribing anything this year. A subscription is new money within the £20k limit, which is distinct from transferring existing ISA funds. So the correct answer to Proplend's question on subscriptions is unambiguously “No”.
Would you grant me permission to contact Proplend on your behalf, quoting your email?
Second email to 4thWay from the lender
After receiving your reply I spoke again to the same Proplend representative who, after consultation with colleagues, confirmed that I could indeed open an IFISA with them if I didn't intend to invest new money in this tax year.
I think it was a case of that individual not quite understanding the rules, as opposed to Proplend as a whole.
Thanks very much for getting back to me and clarifying the situation.
If you're just transferring in money that you put into other ISAs in an earlier tax year:
- When asked by the P2P lending company whether you have, or will, subscribe to other IFISAs as well as theirs this tax year, you can confidently answer “No”.
- If you're still challenged by the P2P lending company, point them to 4thWay!
Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
We are not financial, legal or tax advisors, which means that we don't offer advice or recommendations based on your circumstances and goals.
The opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by ESMA or the FCA. All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from Loanpad and Proplend, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.