Adviser guide - IFISA

9 8 WHY INVEST IN AN IFISA WHY INVEST IN AN IFISA The IFISA arguably sits between Cash and Stocks & Shares ISAs in terms of risk, offering higher returns than cash, because the investor is putting their capital at risk, and less volatility (along with less liquidity) than listed bonds and shares. Additionally, as investments rather than savings, they can be advised upon and would be considered as FUM for an advisory business. Why invest in an IFISA? Cash ISAs, on the other hand, are unlikely to be considered as Funds Under Management (FUM) for an adviser, usually meaning that they are out of scope when calculating charges or valuing an advisory business. ISA tax breaks are well-known: subject to the annual investment limits, there is no tax to pay on any income or capital gains made within the ISA. This is exactly the same for IFISAs. Once the annual Personal Savings Allowance has been exceeded (and for most advised clients (higher rate taxpayers), at £500 per year, including any income from bonds and interest from unit trusts, it’s likely to be), ISAs are usually the next step when looking for tax-efficient investments. The cutting of pensions allowances - down to as little as £10,000 per annum for higher earners, or a lifetime allowance of £1,030,000 from April 2018, has also left many of the mass affluent population looking for alternative tax- efficient wealth accumulation routes. Now, ten years on from the emergence of alternative finance, the sector has come of age. £10bn has been raised using these funding models, with 89% of the 2016 volume attributable to Peer-to-Peer lending and Debt Based Securities. (source: CCAF) The number of IFISA managers is at over sixty and growing, from smaller innovators to the more established players, including some that are heading towards main market listing. With a number of the major IFISA product providers now fully approved after delays in the full FCA authorisation process, inflows of up to £1 billion are expected in this tax year. For example: • Stock & Shares • Unlisted Corporate Bonds • Junior Stocks & Shares ISAs Stocks & Shares ISAs The ISA family Cash ISAs For example: • Fixed Rate Cash Isas • Instant Access Cash ISAs • Junior Cash ISAs P2P Lending or Loan-based crowdfunding Debt Based Securities or Investment based crowdfunding Innovative Finance ISAs LOWER RISK HIGHER RISK UK ALTERNATIVE FINANCE MARKET VOLUME (2011-16) SOURCE: CCAF, DECEMBER 2017 £0.31bn 2011 £0.49bn 2012 £0.67bn 2013 £1.74bn 2014 £3.2bn 2015 £4.58bn 2016 £1bn £0 £2bn £3bn £4bn £5bn The government believes there is a strong case for allowing crowdfunded debt securities issued by companies to be held in ISAs. This will provide ISA holders with greater choice over how to invest and will support the crowdfunding sector to continue to grow as a source of alternative finance for businesses. HM TREASURY