Innovative Finance ISA or Stocks and Shares ISA

An Innovative Finance ISA and a stocks and shares ISA are both individual savings accounts, both sit inside the same £20,000 annual allowance, and both are tax-free. What separates them is what your money is actually doing. A stocks and shares ISA invests in the markets: shares, funds, bonds and similar assets. An Innovative Finance ISA, sometimes called a crowdfunding ISA, uses your allowance for peer-to-peer lending, where your money is lent to borrowers who could be individuals, businesses or property developers¹.

That difference drives everything else. In a stocks and shares ISA the value of your investments can fall as well as rise, and you may get back less than you put in³. In an Innovative Finance ISA the risk is different in kind: if whoever you have lent to goes bust, the Financial Services Compensation Scheme does not cover your investment⁴. Neither ISA is a savings account, and neither comes with the capital guarantee a cash ISA has.

The tax treatment is the same for both. ISAs are tax-exempt accounts for cash, stocks and shares and innovative finance, and any income received is free of tax⁵. The protection is not the same, and that is the single most important thing to understand before choosing between them.

What each ISA invests in: stock markets or peer-to-peer lending

A stocks and shares ISA is where the money you put in is invested on the stock markets¹. In practice that means shares in companies, also known as equities, government and corporate bonds, commercial property and commodities, usually held through funds rather than bought one by one¹⁰. A platform might offer shares, funds, ETFs, bonds and investment trusts⁷. Only authorised or recognised funds may be held in a stocks and shares ISA under current law¹¹, and shares must generally be acquired through a public offer rather than before listing¹².

An Innovative Finance ISA lets you use your ISA allowance for peer-to-peer lending¹. It is most commonly used to match investors with borrowers, who could be individuals, businesses or property developers². The eligible investments are peer-to-peer loans and crowdfunding debentures⁴. The ISA was created in 2015 alongside cash ISAs and stocks and shares ISAs, and is offered by peer-to-peer lending platforms with the appropriate regulatory permissions⁵.

The range of what an IFISA can hold has widened. From 6 April 2024 the permitted investments were expanded to include long-term asset funds and open-ended property funds with extended notice periods¹⁴. Certain investments that would otherwise qualify for a stocks and shares ISA, but for their limited liquidity, can qualify for an Innovative Finance ISA instead¹⁰. Long Term Asset Funds were added to the qualifying investment types¹⁵.

One limit matters if you are comparing the two. An investment will not qualify for an IFISA where there is a close relationship between lender and borrower, mirroring the crowdfunding rules¹¹. And the 2023 changes were not retrospective: those who had already invested in a qualifying peer-to-peer arrangement could keep their investments¹¹.

Both share the £20,000 annual ISA allowance

The £20,000 limit applies across Cash ISAs, Stocks and Shares ISAs and Innovative Finance ISAs⁶. You can split it between them however you like, so a saver could put part into an IFISA and part into a stocks and shares ISA in the same tax year¹⁶. The allowance is per person, per tax year¹⁷.

Since April 2024 you can open and pay into several ISAs of each type in a year, so two cash ISAs or two stocks and shares ISAs are allowed, but the £20,000 cap still applies across all of them¹⁸. You can also hold a cash ISA and a stocks and shares ISA at the same time, and more than one of each if you want¹⁹.

The allowance itself is not changing for stocks and shares or Innovative Finance ISAs. From April 2027 the limits for Innovative Finance ISAs, LISAs and Stocks and Shares ISAs remain the same²⁰. What changes is the cash side, covered below.

Risk: markets can fall, borrowers can fail to repay

These two ISAs carry different risks, and neither is a place for money you might need at short notice.

With a stocks and shares ISA, the value of your investments can fall as well as rise, and you may get back less than you put in³. The success of your investments depends on the market, and there is no guarantee you will get your money back²¹. Providers describe these as higher risk than cash²², and the value is not guaranteed²³.

With an Innovative Finance ISA, the risk sits with the borrowers. If whoever you have lent to goes bust, the Financial Services Compensation Scheme does not cover your investment⁴. Peer-to-peer lending is described as higher risk¹⁹. The FCA defines an innovative finance ISA as an individual savings account which includes an innovative finance component²⁴.

A cash ISA behaves differently again: the money you put in cannot go down, because it is not subject to the risks of investing in stocks and shares³. That is the trade-off a saver weighs against the growth potential of the other two.

Tax treatment is the same, the protection is not

Both ISAs are tax-free in the same way. ISAs are tax-exempt cash, stocks and shares and innovative finance accounts, and any income received is free of tax⁵. Dividends and returns on shares and bonds held in an ISA are tax-free¹⁷, and there is no income tax on dividends or other income from investments sold within a stocks and shares ISA¹⁹. Buying funds inside a stocks and shares ISA means you will not pay dividend tax or capital gains tax²⁵.

What an ISA does not do is shield you from every tax. Stocks and shares ISAs do not shield your investments from inheritance tax or stamp duty when buying shares¹⁸. If you only hold a stocks and shares ISA you will not receive a tax certificate or tax report, and there is no capital gains tax payable²⁶.

The protection gap is where the two diverge. The FSCS says investments such as stocks and shares ISAs may be covered under investment protection⁸. An Innovative Finance ISA is not covered if the borrower goes bust⁴. That is a difference in what happens when something goes wrong, not in how the tax works.

Fees and charges

Neither ISA is free to run, and the charges differ by provider rather than by ISA type. A stocks and shares ISA platform may charge for holding your investments, for dealing, and for the funds themselves. Some platforms run promotions: one offers £150 towards trading fees for new customers, with terms and fees applying²⁷. Fees and charges on ISAs are set out in more detail on our ISA fees and charges page.

A new charge is coming for cash held inside these ISAs. From 6 April 2027 the rules introduce a 22% charge on interest paid on cash holdings held in Stocks and Shares and Innovative Finance ISAs, which are not cash ISAs²⁸. The account manager must pay income tax at the savings basic rate in force for the year on interest or alternative finance return on cash deposits held under a stocks and shares component or innovative finance component, and no relief from tax applies to that interest²⁹. The charge applies regardless of age³¹.

Getting your money out: access, notice periods and transfers

Access depends on the provider and the underlying investment, not on the ISA label.

Some ISAs are flexible, which means you can withdraw and replace funds within the year without it counting against your allowance. A cash, stocks and shares or innovative finance ISA may operate flexibly, but it is up to individual providers whether they offer this service³³. If yours is not flexible, money you take out and put back uses up allowance again.

Notice periods are a particular feature of Innovative Finance ISAs. Certain investments that are subject to a notice period, and so cannot be held in a stocks and shares account, may be held in an innovative finance account³⁵. That means your money may not be available on demand.

Transfers work differently for each type. You can transfer each type of ISA into the same type of ISA with another provider³⁶. You can transfer existing cash ISAs and stocks and shares ISAs into a new stocks and shares ISA without affecting your allowance¹⁸. For a stocks and shares ISA you will either do an in-specie transfer, which keeps you invested throughout, or a cash transfer³⁷. Transfers into an Innovative Finance ISA take place in cash, so if you hold stocks and shares ISAs, all of your investments would be sold and the cash used to invest². You can transfer money already within a cash ISA or stocks and shares ISA to an Innovative Finance ISA offered by a peer-to-peer provider², and you complete a transfer form with the provider you want to switch to².

One thing you cannot do is move existing peer-to-peer investments straight across. You will not be able to simply transfer your existing peer-to-peer investments into an Innovative Finance ISA if the site you invest with launches one².

Changes coming for cash ISA transfers and cash held in stocks and shares ISAs

The rules around moving money between ISA types are tightening from April 2027, and the changes affect both of these ISAs.

From 6 April 2027, transfers from a stocks and shares ISA or an Innovative Finance ISA into a Cash ISA are prohibited where the account holder is below the age of 65³⁰. The legislation allows the current year's subscriptions and previous years' subscriptions in a stocks and shares or innovative finance account to be transferred to a stocks and shares account, an innovative finance account, a Lifetime ISA, or a cash account if the account investor is 65 or over at the end of the year³⁸. In other words, the route out of these ISAs and into cash closes for under-65s.

The cash ISA allowance is also changing. From 6 April 2027, under-65s can put up to £12,000 of the £20,000 allowance into a cash ISA, with the remaining £8,000 needing to go into a stocks and shares ISA⁴⁰. The full £20,000 allowance stays available for those 65 or over⁴⁰. The overall ISA allowance remains at £20,000⁴¹.

The 22% charge on interest from cash held inside stocks and shares and Innovative Finance ISAs also takes effect from 6 April 2027²⁸. The limits for Innovative Finance ISAs, LISAs and Stocks and Shares ISAs themselves remain the same²⁰. Our page on the changes to the cash ISA limit sets out the full picture.

Which one fits your time horizon and attitude to risk

The two ISAs suit different jobs, and the deciding factors are how long you can leave the money and how much loss you could absorb.

Stocks and shares ISAs are designed for long-term growth, typically over at least five years⁹. Providers describe a minimum investment horizon of at least five years⁴. That horizon gives markets time to recover from falls, which is why money needed sooner is usually a poor fit.

An Innovative Finance ISA has no equivalent market cycle, but it does have borrowers who may not repay, and the FSCS will not step in if they fail⁴. Some of its investments carry notice periods, so the money may be locked for a set time³⁵. It tends to appeal to people who understand peer-to-peer lending and can accept the loss of a borrower without recourse.

A cash ISA is the third option: the money you put in cannot go down³. It offers no growth beyond interest, but no capital risk either.

Who provides these accounts matters less than what they hold. Stocks and shares ISAs are offered by investment platforms and providers such as interactive investor, which lets you invest in shares, funds, ETFs, bonds and investment trusts⁷. Innovative Finance ISAs are offered by peer-to-peer lending platforms with the appropriate permissions¹³. Our Innovative Finance ISAs and stocks and shares ISAs pages cover each in more depth.

Where protection stops, and where to get help

The protection you get depends on the ISA, not on the tax wrapper.

For a stocks and shares ISA, investments may be covered under investment protection if the firm fails⁸. For an Innovative Finance ISA, the FSCS does not cover your investment if the borrower goes bust⁴. Neither scheme pays out because an investment fell in value or a borrower simply did not repay as expected.

If something goes wrong with a provider, the Financial Ombudsman Service can look at complaints about ISAs¹. Stocks and shares ISAs are the most complained-about investment product, with 1,655 new complaints in 2024/25⁴³. In the first quarter of 2026/27 there were 392 complaints about stocks and shares ISAs⁴⁴, and in the same quarter a year earlier the uphold rate was 39%⁴⁵. Our page on complaining about an ISA provider explains how to raise a complaint.

Free, impartial help is available. MoneyHelper offers guidance on savings and investments, and the Financial Ombudsman Service is free to consumers. If a transfer goes wrong, there are rules on how long it should take and what you can do³⁷.