Whitni Thomas, senior manager in investor relations and crowdfunding at Triodos Bank UK
While the most recent reports state that total ISA investment in the UK has now reached over £65 billion, the Innovative Finance ISA (IFISA) is still the lesser-known member of the ISA family of products. The IFISA was launched in 2016 to offer investors the opportunity to invest in peer-to-peer loans and crowdfunded debt securities in a tax-efficient way. After a slow start, IFISA investment grew rapidly and reached £1 billion by February 2020 according to The Investing and Savings Alliance (TISA).
There are two types of IFISAs, the one that’s more widely known holds peer-to-peer loans, but there are also IFISAs that hold crowdfunded debt securities or bonds. As many peer-to-peer platforms have stopped accepting or reduced inflows from retail investors, now is a good time for investors to consider the ‘other IFISA’: the bond IFISA.
The bond IFISA is a useful tax wrapper for investors who are comfortable making their own investment decisions. DIY investors can diversify their investments, through investing in a wide range of organisations, including sustainable businesses and even social enterprises and charities to enable them to grow. They can choose specific companies to support to ensure that they fit with the level of risk they are happy with, alongside the projected return. Some investors, and their numbers are growing, also want to ensure that their investments align with their values and support the kind of world that they want to live in and choosing direct investments enables this.
Our recent research found that 94% of ISA holders aged between 18 and 34 have or would consider moving their money to an ethical provider. An empowering, but not surprising statistic especially for those of us who have championed a different way to invest via investing for impact, but it highlights the tide is turning, and more investors than ever before are looking for impact along with financial returns.
Another benefit of bond IFISAs is that the investment minimums are lower than most funds at £5 or £50, so this has also proved to be attractive for some investors, especially those who might be new to investing or have smaller amounts to invest.
By raising crowdfunding investment, Triodos offers organisations a valuable alternative to bank finance which usually requires property or other assets to use as collateral. This requirement can sometime be too restrictive or preclude some organisations of finding the finance they require.
Crowdfunding investment, through the IFISA, enables organisations to move forward with their growth plans and to build the foundations for a more sustainable future. For example: A YMCA which is building a new community activity centre to address the root causes of deprivation and social inequality in one of the UK’s most deprived neighbourhoods. A community social enterprise collecting, selling, and making furniture from wood headed for landfill and supporting volunteers to gain work experience and confidence at the same time. A charity providing support and accommodation for adults with learning disabilities. The impact from all of these organisations is tangible and is made possible through direct investment held in an IFISA.
As we all focus on how we can recover from this difficult year and create a path for economic growth, impact investors can help to fuel the societal recovery in a way that also looks after the planet. This kind of investment supports that move towards positive change, the idea of which seems to have become more widely understood in the last year not at least to avoid another pandemic, but to also move closer towards a more inclusive society and to combat climate change.
The bank is keen to support these positive impact organisations by providing access to the growth capital they need, by enabling more investors to align their investments to their values. Let’s hope that this year is the year for the ‘other IFISA’.
Please note that capital in any investment product is at risk. These investments are often long-term and not readily realisable, which means that accessing capital during the life of the investment might not be possible.
The tax benefits of an ISA are subject to change and depend on individual circumstances.
More information on an IFISA with Triodos Bank UK is available here.