Pre-2016, investors looking to make the most of the generous ISA tax wrapper - which makes all returns tax-free - were limited to the often-low-yielding Cash ISA and fluctuating Stocks and Shares ISA.
However, in April 2016, the government introduced the Innovative Finance ISA (IFISA), which has since offered experienced investors access to potentially higher, tax-free returns.
In an IFISA, investors can hold peer-to-peer loans and debt-based securities - such as SME loans, consumer loans and property bonds - with target returns generally between 4% and 8%.
And 2020 could be the biggest year for the IFISA yet, as alternative finance is expected to be crucial in supporting the bounce-back of the UK’s economy post-Coronavirus, and experienced investors turn to the account in search of higher potential returns.
The IFISA over the years
In 2019, the IFISA surpassed £1 billion in inflows, and its growth is on an upward trajectory.
In the 2016/17 tax year that it was launched, 5,000 IFISAs were opened, totalling £36 million in subscriptions.
The following year, IFISA subscriptions surged to £277 million, and the most recent ISA statistics show further growth - with £328 million subscribed to IFISAs in 2018/19.
The popularity of the IFISA isn’t too surprising. Before its introduction, peer-to-peer loans and debt-based securities could not be held in any ISA, and investors were required to declare any income from these investments to the tax-man.
In the year that the IFISA was introduced, the pension taper was also launched. This taper means that anyone with an ‘adjusted income’ of over £240,000 will see their annual pension allowance decrease.
For higher earners, this could significantly impact pension planning, but the IFISA - with its £20,000 annual allowance (as of 2020/21) and tax-free returns - could, potentially, act as an important supplement.
The importance of the IFISA in the wake of COVID-19
Before the current Coronavirus pandemic, investors were already faced with staggeringly low interest rates and a volatile stock market.
But after the Bank of England (BoE) cut their base rate to 0.1% in March in response to COVID-19’s financial implications and the stock market took a hit, alternative investments uncorrelated to both became an important consideration for experienced investors looking to make their money work harder.
When discussing their plans to spur the UK’s economic recovery, the government has been clear that one sector in particular will be crucial: the housing market.
Rishi Sunak, Chancellor of the Exchequer, presented his ‘plan for jobs’ to parliament on July 8, announcing a number of actions aimed at supporting the housing market and protecting and creating jobs.
It’s estimated that 240,000 people are directly employed by house builders and their contractors, with between 500,000 and 700,000 indirectly supported through the supply chain.
A temporary cut to stamp duty and the prioritisation of modern methods of construction - such as CoreHaus, a modular housing solution successfully trialled on Homes by Carlton’s (MAVEN Bonds’ Strategic Housing Delivery Partner) Cathedral Gates development - are just two of the incentives Sunak has implemented to aid in the market’s recovery, while allowing the UK to build ‘better, greener and faster.’
Robert Jenrick, Secretary of State for Housing, has also announced that new homes in England will be granted automatic building permission, in an attempt to speed-up building and diminish the planning-barrier that many house builders face.
However, another barrier that regional house builders in particular encounter is funding - and at this level, the property-backed IFISA is key.
The property-backed IFISA delivers high potential returns for experienced investors, while providing high-quality regional house builders with alternative finance to build much-needed housing - tackling the UK’s housing shortage, and boosting the economy.
MAVEN Bonds property-backed IFISA
The MAVEN Bonds property-backed IFISA targets potential returns of between 4.75% and 7.75% for investors.
The knowledge and experience of the MAVEN Bonds team and advisory board - made up by Growth Capital Ventures (GCV), Maven Capital Partners (MCP) and Homes by Carlton - mean that only the highest quality property projects are chosen.
Looking ahead in 2020, MAVEN Bonds’ Strategic Housing Delivery Partner, Homes by Carlton, have four projects in the immediate pipeline, which will provide a mixed-tenure of sale and rent - in line with current market demand.
Infrastructure work has already commenced on the Thorpe Paddocks development in Thorpe Thewles, for which MAVEN Bonds provided an £800,000 bridging loan.
The aforementioned government incentives to stimulate the house building industry and housing market’s recovery - which, in turn, creates jobs and boosts the UK’s economy - could be largely beneficial to property-backed IFISA investors, as well as regional house builders.
The MAVEN Bonds product is available exclusively to experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).