How To Lend Across Multiple IFISAs In One Year!
As you may know, you can only open one IFISA in a tax year, which runs from the 6th of April to the 5th of April, and this limits your ability to spread your money and the risks across lots of providers.
But you're wrong!
You're actually allowed to open lots of Innovative Finance ISAs in one tax year. The rule is that you're not allowed to put new money into more than one IFISA. So it's possible to create a portfolio of half-a-dozen IFISAs and hundreds or thousands of loans over the course of a few weeks, rather than years, in order to rapidly shrink the risks of lending even further.
Opening more than one IFISA
HMRC has confirmed to 4thWay that there's no limit to the number of IFISAs you may open in a year. The rules just mean that any new money invested between the 6th of April one year and the 5th of April the following year must always be in a single IFISA. Presumably, this rule makes it easier to ensure that annual ISA limits are not breached.
In other words, you can open an IFISA for new money, which is capped at £20,000. And you could open another new IFISA at the same time, into which you might transfer other, older money from an IFISA that you contributed to in an earlier tax year.
You may open as many IFISAs as you want at any time with the intention of transferring in different pre-existing cash ISAs, share ISAs or IFISAs into those new IFISAs.
Indeed, there's no limit to this. You can often even split up a single, older ISA into several new IFISAs through partial transfers…
Partial transfers from other ISAs spread your money even faster
If you just have one or two other ISAs, some IFISA providers allow you to make partial transfers out and, on the other side, to transfer in part of the money from an existing ISA.
So it's pretty easy to split an old ISA into several new IFISAs. You create a large portfolio of IFISAs and loans over the course of a few weeks, rather than years, rapidly shrinking the risks of lending even further.
Assetz Capital*, CrowdProperty, HNW Lending*, Invest & Fund, Kuflink*, LandlordInvest, Loanpad*, Money&Co, Proplend* and Sourced Capital* have confirmed that they will allow partial transfers in and out of their IFISAs, with no special fees or small print. That is not a complete list, but it is nine out of ten IFISA providers that we have asked, so I am sure that most others do so as well, if you ask them.
Cash ISAs and share ISAs usually allow partial transfers out of cash, too. For example, the latest terms and conditions for Hargreaves Lansdown's popular Stocks & Shares ISA allows partial transfers out to other ISAs. Similarly, small print for Nationwide Building Society's cash ISAs allows for partial transfers out.
What this means is that you could lend across a half dozen or more IFISAs with relative ease within about a month through partial transfers from an existing ISA or ISAs. You don't have to wait a whole year to open your second ISA, then another year for the third, and so on.
Just to be doubly clear, though, you can only do partial transfers of money you contributed in previous tax years. New money contributed in the current tax year has to stay where it is or be transferred in full. The same applies to interest or gains made on new money. That money becomes “old” as soon as the 6th of April arrives again, in which case it can be split up and transferred out as much as you want.
An example for even more clarity
Let's say you have put £10,000 into your ISAs over the past few years and that pot has grown to £12,000. Next tax year, you want to put in an additional £5,000 into tax-free P2P lending.
That £5,000 will need to all go into one IFISA and it can't be split into more IFISAs until the start of the following tax year. However, the other £12,000 can be split into as many IFISAs as you want, and you can open as many new IFISAs as you want to do so, right away.
What if you have no other ISAs?
If you have no other ISAs right now, you can open several Innovative Finance ISAs before the end of the tax year while putting money into just one of them. At the start of the new tax year, you can put new money into one of the other IFISAs, and transfer out part of the money in the first IFISA to each of the others you opened. So you still spread your money around quickly.
You can also diversify by opening other, “normal” P2P lending accounts, which still typically pay attractive interest rates and, for most people, they will also be tax free.
The author is not a lawyer or tax specialist and 4thWay's content does not constitute advice.
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