It’s approximately two months until the end of the 2016-17 tax year, which means it’s time to start considering how you should invest your annual ISA allowance before you lose the tax-efficiency come April 2017. If you are looking to diversify your portfolio, or simply generate higher yield as a one-off, tax-free investment, subscribing to an Innovative Finance ISA could be a viable solution.
With ISA plan managers like Crowd2Fund offering near 9% APR returns, it’s certainly worth investigating (more on Crowd2Fund below).
Basic ISA Guidelines
£15,240 2016-17 ISA allowance (must not exceed subscription limit).
ISA allowance increasing to £20,000 for 2017-18 tax year, starting April 6th 2017.
Allowance can be spread between three major ISAs: Cash; Stocks & Shares; and IFISA however you wish.
You cannot subscribe your annual ISA allowance to two ISAs of the same type in the tax year.
If you withdraw from your ISA within the tax year you will lose the tax-efficiency on the interest earned.
What is an Innovative Finance ISA?
- £3bn invested in 2016.
- 177,000 active retail investors (estimate).
- Some platforms are fully FCA regulated since 2014*.
Invest in real people and businesses, your “peers”, across a P2P platform.
- Consumer, property and business borrowers**.
Manual or auto-diversification loan selection type**.
- Unsecured or secured loans available**.
- Average interest rate 5% per annum.
Risk Warning: Peer-to-peer lending is not covered by the FSCS, there is a risk you could lose money without recovery.
*Only FCA authorised and HMRC ISA plan manager approved providers can offer IFISAs to their customers. Currently only a handful of P2P lending platforms are fully authorised and approved to offer the IFISA.
**These are dependent on the platform and product you invest in.
One such ISA plan manager is the peer-to-peer lending platform, Crowd2Fund. Crowd2Fund has seen great success since launching in 2014, facilitating millions of pounds worth of investment in UK SME businesses from thousands of registered investors.
How do I earn 8.7% through an IFISA?
Crowd2Fund Investment Overview
Borrower Type: UK SME businesses
Loan Selection: Manual
Term: 6 months to 5 years, 3 years average
Gross avg Interest (%): 8.7% APR
Fees: 1% of total value of the repayment. See APR page for details.
Min. Investment: £100
The Crowd2Fund Innovative Finance ISA has been very popular since its inception, with many investors not just subscribing new money but also transferring their old ISA money. Crowd2Fund has set up a simple process to automate this for you. Transferring your old ISA money also means that it is retained within the ISA tax-wrapper.
“Cans and Cannots” of the IFISA
Subscribe some or all of your £15,240 tax-year allowance to an IFISA.
Transfer current tax-year ISA subscriptions from any ISA type to an IFISA.
Transfer old ISA subscriptions from any ISA type to an IFISA.
Subscribe annual ISA allowance to two IFISAs in the same tax year.
Subscribe more than £15,240 across your Stocks and Shares, Cash and IFISA.
Ask the P2P lending platform, like Crowd2Fund, for investment advice.*
Transfers & Withdrawals Explained
Here are a couple of scenarios.
You would need to speak to your current IFISA provider/plan manager so they can arrange a “sell-out” of the loans you are storing in said IFISA, before transferring the cash subscriptions into a Crowd2Fund IFISA.
Peer-to-peer lending is not what is considered to be a “liquid” asset class. It is not like cash or equities which are easily tradable and therefore liquid. If you wanted to withdraw from your Innovative Finance ISA, you would need to get in touch with the peer-to-peer lending platform (potentially your ISA plan manager) facilitating your investment and request they sell your loan parts to a new investor.
Crowd2Fund allows you to manage this yourself on its Exchange. You simply offer the loan to the community and another investor purchases it from you. This converts your P2P loan into a cash asset, which can then be withdrawn. There are, however, no guarantees that your loan will sell as quickly as you’d potentially hope.
Reminder: your capital is at risk, actual returns may be higher or lower, tax treatment dependent on individual circumstance and is subject to change.