Funding IFISAs with ‘Subscriptions’
You can invest to an IFISA using your current ISA allowance and by transferring existing ISA ‘pots’.
You can invest (‘subscribe’) new money into Individual Savings Accounts each year but there are limits – annual ISA allowances. The ISA allowance for the tax year 2017-18 has increased to £20,000. So, there’s more scope to invest tax free and with the addition of IFISA, more scope to diversify investments.
New ISA subscriptions can be spread across new and existing ISAs with different providers AND across the various ISA types. Your ISA allowance doesn’t have to all go to a new Cash ISA, or all to an IFISA for that matter. It could be invested partly to an existing Cash ISA, partly to a new Stocks and Shares ISA and partly to a IFISA for example.
You can only invest new subscriptions to one of each of the ISA types each tax year. Not one of each type with each provider, just one of each type with any provider. It is your responsibility to ensure that you’re not subscribing to too many ISAs or exceeding your allowances in any given tax year. Each ISA provider can only tell you what you’ve subscribed to them and only flag if you have used up your annual allowance in an ISA with them alone.
The graphic above shows a £20,000 (2017-18) subscription allowance being split between three different types of ISA. It also shows a fourth new ISA and a second, current year IFISA, set up to reinvest and consolidate transfers from Cash and Stocks and Shares ISAs from previous years.
Note: Opening a second new ISA of one type is perfectly within the rules in this example as new subscriptions are only invested to one of the IFISAs. Also, subscriptions don’t have to go to new ISAs (opened in that tax year) – they can go to an existing ISAs of that type. If you’re looking for an ISA where you can remove funds and put them back before the end of the tax year, it’s worth checking whether your old ISAs in particular are Flexible ISAs.
It’s important to be aware that once an ISA has been opened, it stays open and invested with that provider until you withdraw all funds or transfer all funds to another ISA. Those savings remain within that tax free wrapper until you decide to do something with them. Current year subscriptions can also be added to an ISA started in a previous tax year.
You don’t have to remove the funds from an ISA at the end of each tax year but you should keep an eye on how they are invested and what rate of return you’re getting – particularly beyond that first year. For example, many people will have opened Cash ISAs when interest rates were much higher and whilst that money is still invested, that ISA won’t be earning the same rate of interest when rates are low like they are now.
Thankfully P2P lending offers a fixed rate of return for the entire loan term, so IFISA interest rates will remain at the level that attracted you to invest until they repay. You can then just reinvest the capital in a new loan or withdraw funds (either flexibly or permanently depending on your circumstances and what the rules of that IFISA allow).