The ISA is a Government initiative to encourage individuals to save and invest. In previous years you could spread your annual ISA allowance across a Cash ISA to earn interest, and a Stocks & Shares ISA to invest in shares and bonds in listed companies. Any returns earned from your Cash ISA or Stocks & Shares ISA are tax free.
In 2016, the Government introduced a new type of ISA called the Innovative Finance ISA (IF ISA). The Innovative Finance ISA (IF ISA) allows you to hold a range of alternative finance products, including our investments (apart from Community Municipal Investments which are not currently able to be held in our IF ISA), in a tax free wrapper that keeps any returns you receive free of tax.
The IF ISA can be held alongside your Cash and Stocks & Shares ISAs. It has been launched by Government to reflect the growing popularity of alternative finance platforms as a new place to save and invest for decent returns.
There are many similarities between Cash and Stocks & Shares ISAs and the IF ISA, including that your returns will not be taxed. Other key benefits are outlined below.
Invest up to £20,000 tax free
The IF ISA allows you to subscribe up to £20,000 in the 2021/22 tax year and protects the return on those investments from tax. You can also reinvest your returns without being taxed, meaning you can grow your money for as long as you like, tax free.
You can choose to split your ISA allowance across Cash, Stocks & Shares, and IF ISAs as you please. You can even move your money around between your ISAs, as long as you stay within the annual limit. Some providers may charge you for this, so do check first.
Just bear in mind that as with Cash and Stocks & Shares, you can only invest in one IF ISA in each tax year (so if you invest in an IF ISA with Abundance, you cannot open one with another provider until next year).
Transfer your existing ISAs
If you have already built up tax free savings in Cash or Stocks & Shares ISAs in previous tax years you can transfer some or all of these funds to an IF ISA, no matter how big the pot. This allows you to diversify your ISA portfolio while keeping the tax free benefit. See our Help Centre article Transfer an ISA to Abundance for more details.