There are a few rules and features related to IFISAs that potential investors should consider.
There are some rules associated with IFISAs that you must consider. The first - and probably the most important - is that with an IFISA, investors are able to invest in debt-based securities and lend funds through the P2P lending market without having to pay any income tax on interest earned. You’re only able to contribute to one IFISA account per tax year though, and only one IFISA account can be opened per platform, per year.
Your annual ISA allowance - which is £20,000 for the 2019/20 tax year - applies to all of your ISAs, including IFISAs. So, if you have more than one ISA, you must choose what portion of your allowance you want to place into each kind of ISA.
New rules introduced by the FCA now mean that mini-bonds can no longer be promoted to everyday investors, and P2P platforms are required to assess clients’ knowledge and experience before allowing them to invest.
Other IFISA rules include;
- There are no limits to the amount of money you can transfer into your IFISA from other ISAs, as long as it has been accumulated within the ISA regime in previous tax years.
- You cannot hold stocks and shares in an IFISA, so if you wanted to transfer your Stocks and Shares ISA, you must first liquidate the holdings - so that the ISA is only holding cash.
- You should never attempt to transfer funds from one ISA to another manually. Instead, you should contact your ISA provider and follow the necessary procedures to ensure your funds do not lose their tax free status.
- Regular debt crowdfunding, or P2P lending, can be held in an IFISA, but equity-based crowdfunding securities are excluded.
- Debentures and other debt-based securities can now be held in an IFISA.
- IFISAs are not covered by the FSCS, a scheme that protects customers when authorised financial services firms fail by covering investments up to a certain amount. For example, Cash ISAs are protected by the FSCS for up to £85,000.