Revealed: The best way to use an Innovative Finance ISA Revealed: The best way to use an Innovative Finance ISA

Julia Groves, head of crowdfunding at Downing, has revealed how she is using company debt to achieve value from Innovative Finance ISAs.

 Revealed: The best way to use an Innovative Finance ISA

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The IFISA was introduced last year and permits investors to place crowdfunding or peer-to-peer lending investments into an ISA, ensuring that any gains are tax free.

Groves was eager to highlight that investors cannot place existing Crowdfunding investments into a new ISA, and that the ISA allowance for the tax year ahead, at £20,000, is the total that can be placed across an Innovative Finance ISA, a Stocks and Shares ISA, and a Cash ISA.

Groves focuses on Crowd Bonds. These products involve lending cash to companies via the platform, rather than becoming shareholders.

She commented that the bonds with which Downing is involved are companies invested in ‘real assets’, such as pubs and property, and if the companies concerned fail to repay the capital, then the assets will be confiscated and sold to pay the bondholders.

Groves remarked that her firm engage in due dilligence of the firms seeking to raise capital, and if investors lose their capital or are not paid the coupon promised, then Downing will not be paid its fee.

Read more: Investors should be cautious on an Innovative Finance ISA 

It is important to emphasise that while the bonds are transferable for a nominal fee, it is not a liquid market, so it is unlikely that an investor would be able to sell the bond before the date of maturity.

Groves commented the she tends to focus on bonds that have a date to maturity of one year.

The bonds tend to have a yield of between 4.75 per cent, to 7 per cent. Groves does not pick the bonds for the investors, instead they select bonds to place on the platform, and the individual investor chooses the bonds in which they want to invest.

She told What Investment that Downing’s contacts and experience as an investor in EIS and other early stage companies has generated the ideas for the bonds that will be on the Downing platform.

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