IF ISA: allowance transfers allowed

By Luke OMahony

Good news for RateSetter investors – from 6 April, anyone who already has a cash or stocks and shares ISA will be able to transfer all or part of their balance over to an Innovative Finance ISA (IF ISA) and continue to earn interest tax-free.

What that means in practice is that if you have, say, £50,000 in a cash ISA, you can transfer all or a portion of that to an IF ISA – and remember, that is in addition to being able to invest a further £15,240 from April this year.

So what else do we know about the IF ISA?

The existing annual tax-free allowance of £15,240 will apply to new ISA investments from April 2016

Unless the Chancellor announces otherwise, the annual ISA allowance rises in line with the previous September’s inflation figure. With the key inflation measure of CPI (Consumer Prices Index) having been at a very low level in the autumn, the allowance is not increasing in April.

That means each individual can to invest up to £15,240 in an ISA in the 2016-17 tax year. You can split this up however you like – so, for example, you could invest the whole £15,240 into an Innovative Finance ISA, or you could put £10,000 in a cash ISA and £5,240 into an IF ISA, or any other combination you can think of (including stocks and shares ISAs).

You’ll only be able to invest into an Innovative Finance ISA with one provider at a time each tax year

This concept also applies to other types of ISA. For example, if you open a cash ISA with Bank 1 and keep it for the entire year, you’ll have to wait until the next tax year before you can open a cash ISA with Bank 2. However, it is possible to transfer your ISA to another provider part way through the year, and you can accumulate several cash ISAs over the course of several tax years. However, you can open a new cash ISA and a new stocks and shares ISA in the same year.

The same is true for the IF ISA: you can open an IF ISA with one provider in the first year (and naturally we hope you’ll choose RateSetter), but you can then open one with a different provider in year two. In a similar vein to the example above, it is possible to transfer between IFISA providers in the same tax year, but you couldn’t invest into two IF ISAs at the same time.

You’ll be able to pay into a Help-to-Buy ISA and an Innovative Finance ISA in the same year

One quirk of the Help-to-Buy (H2B) ISA is that you can’t open a H2B ISA and a cash ISA in the same tax year (however a small number of providers allow you to hold both within the same wrapper).

There are no special restrictions that would stop you from paying into a H2B ISA and an IF ISA in the same year, and the IF ISA doesn’t suffer from the same restrictions that apply to the H2B ISA (which has a maximum investment of £200 per month), meaning that combining the two is a great way to invest and build up a deposit on a first property.

RateSetter’s products are investments as opposed to savings, so don’t benefit from FSCS cover, although we do have a Provision Fund to help protect our investors. Capital is at risk, but with that risk comes substantially better returns.

To find out more about the Innovative Finance ISA, have a look at our Innovative Finance ISA page.