Treasury to allow bonds and other 'debt securities' for Innovative Finance ISA

By Daniel Lanyon on Tuesday 16 August 2016

Alternative Lending

Draft legislation on widening the parameters of the new Innovative Finance ISA has been published revealing bonds and other debt instruments will be allowed under the new tax wrapper rules. 

Investors will be able put their cash into bonds and other debt securities made through p2p and crowdfunding sites within the tax efficient Individual Savings Account (ISA) wrapper from 1 November 2016, according to documents published by Her Majesty’s Revenue and Customs.

There are several new conditions outlined, most importantly the ‘debenture’ i.e the bond must be a “transferable” security issued by a company or a charity;

The launch of the Innovative Finance Individual Savings Account (IFISA) back in April has been somewhat muted by delays to individual firms’ authorisation although the move by the Treasury to increase the scope of products will likely come as welcome news to many hoping to see momentum since its inception back in July 2015.

This is especially likely since the Brexit vote and subsequent slashing of interest rates to 0.25 per cent by the governor of the Bank of England Mark Carney, which has serves to make cash less attractive as an asset class to hold within an ISA. 

Tim Slesinger, chief executive officer of LendingWell, an alternative finance platform, says the move is positive for investors. 

“We welcome the addition of bonds to the IFISA. It is an important addition at a time when banks have slashed their deposit rates in a response to the Bank of England cutting the Base Rate to 0.25 per cent. It enables an investor to have a diversified portfolio of P2P loans producing between 4-7 per cent within the tax wrapper,” he said.

Now, according to draft legislation published by the Treasury, the government will allow a greater array of debt instruments such as bonds issued through crowdfunfing sites to be held in the IFISA - and therefore not subject to taxation – up to the value of £15,240 at present annually.

The document states: “From 1 November 2016 to provide that certain debentures issued by companies and charities and offered via an electronic system (including those offered via a crowdfunding platform) can be held in an innovative finance ISA where they satisfy certain conditions.”

The full draft legislation can be viewed here

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