How long would it take to become an Innovative Finance ISA Millionaire?

“…in this world nothing can be said to be certain, except death and taxes.”, so wrote Benjamin Franklin. The late great comedian Ken Dodd did his best to avoid both, unfortunately succumbing to death last year aged 90. Fortunately, while both are inevitable, there are many ways that UK investors can legally reduce their tax bill, not least via the ever popular Individual Savings Account (ISA).

Since they were launched in 1999 ISAs have been the go-to product for consumers looking to shelter their savings income from the taxman. According to statistics from HMRC, at the end of the 2017/18 tax year the total market value of Adult ISA holdings stood at a mammoth £608 billion – that’s more than the annual GDP of Saudi Arabia! However, well under 1% of this value was made up by holdings in the relatively new Innovative Finance ISA (IF-ISA).

Launched by the government in April 2016 the IF-ISA enables investors to earn tax-free returns on loans and bonds issued by peer-to-peer (P2P) lenders and crowdfunding companies by putting them within the ISA wrapper. These typically take the form of business or consumer loans, whereby investors directly lend to companies looking for growth capital or to individuals looking to borrow money.

The IF-ISA occupies a middle ground between Cash and Stocks & Shares ISAs in terms of both risk and returns. Various IFISA providers have target rates of return starting at around 4% up to as high as 12%. Of course it involves more risk than the theoretically risk free Cash ISA but is less risky than investing in more volatile equities.

After a slow start, investors now seem to be taking to the IFISA

According to statistics from HMRC, the IF-ISA attracted £290 million in subscriptions in the 2017/18 tax year across 31,000 accounts. That soared from just £36 million across 5,000 accounts in the previous year. Some commentators are expecting the figure to hit £1 billion for 2018/19 as knowledge of the product increases and investors become more attracted to the IF-ISAs “halfway house” status.

Make a million

For investors with enough cash to take advantage of the full (and generous) £20,000 annual ISA allowance, it is interesting to show just how quickly their funds can grow into a million pounds. This is illustrated in the table below. Our calculations assume a 9% annual return (a target rate of return of some IFISA providers) paid at the end of the year, £20,000 annual investment at the start of the tax year and that interest payments are immediately invested at the same rate.

Taking advantage of the tax free returns and combined with the wonder of compound interest, the table shows that investors could become IFISA millionaires within just under 19 years.

For more information on the IFISA and to open one with Crowd for Angels CLICK HERE

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Risk Warning

Investing in small public listed or private companies involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Investing in debt pitches through Crowd for Angels (UK) Limited involves lending to companies and therefore your capital is at risk and interest payments are not guaranteed if the borrower defaults. Crowd for Angels is targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own Investment Decisions. You will only be able to invest via Crowd for Angels once you are authorised. Please click here to read the full Risk Warning.

This page has been approved as a Financial Promotion by Crowd for Angels (UK) Limited (Company number: 03064807) , which is authorised and regulated by the Financial Conduct Authority (Reference number: 176508). Investments can only be made on the basis of information provided in the Pitches by the Investee Companies concerned. Crowd for Angels takes no responsibility for this Information or for any recommendations or opinions made by the Investee Companies.

Pitches may contain forward looking statements and financial forecasts or projections. Forecasts are not a reliable indicator of future performance. Crowd For Angels makes no judgement or opinion of the likelihood of targets being achieved. Investments made in companies listed on the Crowd For Angels platform are not covered by the Financial Services Compensation Scheme (FSCS).

The availability of any tax relief, including EIS and SEIS, depends on the individual circumstances of each investor and of the company concerned, and may be subject to change in the future. If you are in any doubt about the availability of any tax reliefs, or the tax treatment of your investment, you should obtain independent tax advice before proceeding with your investment.