Investors should consider quite carefully before investing in the Future Fund scheme. It is not for everyone but the returns can be attractive for those getting it right. The terms of the Future Fund Convertible Notes are:
I. Interest on the loan will be a minimum of 8% per annum (non-compounding) or the interest rate agreed between the company and investor(s) (if higher);
II. Interest will accrue until the loan converts or is repaid;
III. Upon repayment, a redemption premium of 100% of the principal amount will be repayable. This is in addition to the principal amount and interest;
This means for example that if the Loan Notes are held to maturity, the potential return of three years interest at 8% p.a. and a 100% redemption premium would total 128%. This is a handsome return and the tax on it can be quite significant depending on your personal circumstances.
Investors should therefore consider investing through the Innovative Finance Individual Savings Account (IF-ISA). It is an account through which you can invest in peer-to-peer loans and crowdfunding debentures such as Convertible Notes issued by companies seeking matched funding from the Future Fund.
Investors can current contribute up to £20,000 every tax year in an IF-ISA. The advantage of investing through an IF-ISA is you do not pay tax on:
• interest on cash held
• income or capital gains from investments and
• If you complete a tax return, you do not need to declare any IF- ISA interest, income or capital gains on it.
The IF-ISA offers an incredible tax shelter for investors investing in Convertible Notes. Investors cannot afford to ignore if they want to maximise their returns.
Crowd for Angels offers the IF-ISA to investors investing on its platform. We are probably the only platform offering the IF-ISA in connection with Convertible Notes as issued via the Future Fund.
For more information on convertible loans and how Crowd for Angels can help raise finance for your business visit https://crowdforangels.com/convertible-loans
The above opinion was written by Tony De Nazareth, a Fellow of the Chartered Accountants Institute of England & Wales, an Associate Member of the Association of Corporate Treasurers and Director of Crowd for Angels, an FCA regulated crowdfunding platform. Please note that tax treatment depends on individual circumstances and tax law is subject to change.