Just 4 weeks into our IFISA journey and it already seems like we’ve been doing this for a while now.
Initially launching to existing customers only, our registered platform Lenders seemed to jump at the chance of earning their loan interest tax-free – gratefully accepting their first option on our ISA.
Live at 11am on 30th May – we had our first IFISA account open within a couple of minutes and our first subscription payments within a couple of hours. Our first ISA loan investment took place later that afternoon.
Right from the outset, ISA subscriptions received have ranged from £1,000 (the typical cost of our loan parts) right up to £20,000 – some of our Lenders had kindly held back their full ISA allowance for the year to invest with us.
But ISA investment isn’t just about current year subscription allowances – Proplend ISA customers are free to transfer in any amount from any type of existing ISA to quickly build up the P2P element of their tax-free portfolios.
It didn’t take long for our Lenders to get to grips with our ISA transfer in process. We received our first batch of transfer in forms just two days later – fully and correctly completed I might add . And as we’ll always aim to do, we sent all these forms onto the relevant transferring provider – same working day. Being a FinTech company, our accompanying ‘Letter of Acceptance’ had included our preference for funds to be transferred by electronic payment and although this is at the discretion of the transferring ISA manager, the early signs were encouraging.
Within 24 hours of receiving our first transfer in forms, we’d received our first two transfer in payments and allocated the funds to the Lenders’ ISA accounts. Not sure if it’s good form to name names but very well done Sainsburys Bank. Our first ISA transfer-funded investment took place that same day, although we were soon to discover just how tough a ‘Personal Best’ that was going to be to regularly challenge.
Since the first couple of transfers (showing just how efficient the process can be), we’ve received a regular flow of transfer in forms, unfortunately followed in mostly all cases by transfer payment cheques – yes cheques … by post. Even ‘banking’ them same day, that’s another five working days tagged onto the transfer completion time. We make a point of notifying Lenders on the day of receipt but it’s frustrating as we’re keen to get the funds allocated just as much as they are.
As the receiving ISA manager, we’re at the mercy of the transferring provider for both the transfer payment method and turnaround time – although we can and do ‘chase’ on behalf of our Lenders. We’re the new kids on the block and it seems we’re not going to change the established processes of Cash and Stocks and Shares ISA providers’ of sending out transfer cheques.
Thankfully we’re yet to receive our first transfer out request but it will happen and when it does we’ll be making transfer payments electronically on the same day we receive fully completed transfer documentation. We don’t charge transfer out fees or impose limits on how much must be transferred out. The way we see it, this all gives potential ISA customers greater confidence that when investing with Proplend they’ll be able to freely and efficiently transfer funds between their ISAs in future – just as the HMRC rules intended.
Proplend’s IFISA is flexible – a benefit that is still relatively unusual but likely to become more common as more P2P Lending platforms are awarded ISA Manager status. For ISA investors, this flexibility means funds can be withdrawn from the ISA and ‘returned’ during the same tax year without being considered as new ISA money.
Current year subscriptions can be withdrawn as well as funds from previous tax years – potentially giving our ISA customers quite a significant flexible pot at their disposal. If Lenders don’t have enough available cash within their IFISA to fund a full loan part, they can withdraw the balance and return it when (along with loan interest earned) they do have enough. We’ve already seen a couple of Lenders use the flexibility in this way and we’re aware that some of their peers are considering moving their balances to and from their ‘Classic’ Proplend account in a similar way.
If a deposit is made which is less than or equal to that withdrawn, it’s treated as a flexible return. Any amount that is not returned in the same tax year will be treated as a permanent withdrawal. If the deposit is more than withdrawals that year, we treat the excess as new subscriptions (unused allowance permitting).
For the ISA investor, this should be straightforward and convenient, although it remains the individual’s responsibility not to subscribe more than their annual allowance across all their ISAs. They are also the only one’s who can ensure they’re not subscribing to more than one ISA of each type each tax year – another HMRC restriction. We can help by raising awareness of these limitations but ultimately we’re not authorised to give specific investment advice.
From the ISA Manager’s perspective, it’s the net subscriptions to our IFISA that we need to report to HMRC at the end of each tax. We need to keep track of client deposits and withdrawals to ensure that this net figure never exceeds the annual subscription during the tax year. And we need to make sure we’re treating these amounts as current year and previous year monies in accordance with HMRC guidelines.
All in all, an ‘interesting’ first few weeks in the ISA community. We’ve already found some process efficiencies and so far seen a 40-60% split in ISA funding between ISA transfers and subscriptions. It’s a somewhat surprising ‘split’ but encouraging that people seem to understand the opportunity and freedom to make their ISA funds from previous tax years work harder for them.
Hopefully our comprehensive IFISA guide on the website has helped inform people on a range of Innovative Finance ISAs considerations and clarify what they can and can’t technically do. We’ve had to be on our guard not to overstep the mark and offer any form of investment advice, particulary where Lenders have called up and we’ve been talking specifics about their account. Naturally you want to help your customers as much as you can but these rules protect us all.
It’s also been encouraging that so many of our Classic Account investors have decided to increase their position with us and open an ISA, and that they’ve managed to achieve this quickly and without too much difficulty. We look forward to opening our doors wider in the coming weeks and months. Register your interest in our IFISA and watch this space.
