It’s getting close to April 5th: the end of the current UK personal tax year and the last chance to use your £20k ISA allowance. You can split your ISA allowance between more traditional Cash ISAs and Stocks and Shares ISAs and the newer Innovative Finance ISA (IF ISA). However, choosing an IF ISA can be more difficult:
- The IF ISA providers are often much smaller with less information or reviews on the net
- Most providers only let you invest in loans listed on their own platform – it’s not like a stocks and shares ISA where you largely have access to the same investments whether you open it with the likes of Interactive Investor or Hargreaves Lansdown
- The FAQ’s are not always clear and definitely not standardised.
Here are some questions that you should be asking yourself when you are choosing an Innovative Finance ISA provider:
What are the ongoing management fees?
Many P2P platforms have no fees on the IF-ISA product, but some have. The last time I checked, Crowd2Fund, Property Crowd and Goji P2P were among those who had an annual account fee that was based on a % of the total investment or account balance. The P2P platforms themselves have to cover additional costs to run the ISA, especially if they use a 3rd party to administer it. So, it is up to the the platform whether they pass these fees to customers or absorb them within their margin.
What are the sell-out/ transfer out fees?
What do they charge if you wish to send funds to another ISA in a later year? Is there a fee to withdraw cash to your standard bank account? What if you want to close your account completely? Ablrate for instance have a £100 transfer out fee per transaction to another provider – but as far as I am aware these fees generally do not apply to cash withdrawals to your non-ISA bank account.
What about Transfers in?
How can you transfer in funds from another ISA? What if you have existing investments in a standard account within that platform, is there an easy way to transfer your holdings into the IFISA account?
To add an example, Ablrate charge £35 to transfer in cash from an existing ISA for amounts less than £2,500, but no charge for transfers greater than that.
Is it a ‘flexible’ ISA?
A flexible ISA allows you to withdraw money from your ISA and repay it back within the same tax year, without using up more of your ISA allowance. Apparently a few of the IFISA account providers allow this – Ablrate, Assetz Capital and Ratesetter to name a few.
Can I invest in the same loan-products as the traditional accounts?
Double check that you will have access to the same investments as you would on the traditional account.
How much manual effort does this platform need?
The novelty of manual investing in P2P loans can wear off after a year or two, but ISAs are often a more long-term investment. Can you just leave your investment on auto-pilot, or are you prepared to manage it for a longer period?
What is the track record of this platform? Will it be around in 5 years?
After the collapse of the British secured lender Collateral, we can no longer take for granted that lending platforms will be here for the long term. Ask yourself how long have they been running, and what is the historical loan origination? Is there data on the level of defaults and loan recovery? How healthy is the pipeline of new loans? What is their status with the FCA (you can check their listing directly on the FCA register)? Is there anything negative when you google them?
Is it Open to All Investors?
Some platforms may restricted their platform to certain investor types (e.g. high net worth or ‘sophisticated’ investors). Others may be closed to only their current investors (Zopa for instance).
Cashback offers are probably not as important a factor for an ISA, since the majority of the benefit will come through reduced taxes. Still, cashback offers exist and often heat up in the run-up to April 5th. Usually you can find good Stocks and Shares ISA cashback via Quidco and Topcashback.co.uk in the run up to April 5th. I have some offers on here for IF ISAs for Lending Works, Ratesetter, Landbay, Kuflink and Funding Secure.