“Alchemy is a marketing business specializing in the marketing of the Innovative Finance ISA. Alchemy does not give financial advice but you may find that many of your questions are answered on the next page of FAQs.”
Does Alchemy give financial advice?
No. Alchemy only markets the IFISA to incorporated entities – companies and Limited Liability Partnerships – in the professional sector and does not give financial advice.
What is an Innovative Finance ISA?
The IFISA is a recent addition to the stable of ISA products devised by the UK Government to encourage people to save. It has all of the tax advantages of a more traditional stocks and shares ISA.
What is a reciprocal IFISA?
The reciprocal IFISA is a product specially devised for principals in corporate entities such as directors, shareholders, members and their invitees. In many professional service firms and small companies the principals lend money directly to their own business. The reciprocal IFISA allows these loans to be made through the lender’s personal IFISA account to the business.
How does this product help to save tax?
The IFISA allows interest to be paid into the principal’s own IFISA account and it is received tax free. Provided the arrangement is on genuine commercial terms, the interest paid by an entity can be a deductible cost in the entity paying it just as if the interest were paid to a bank for an overdraft facility. The effect is that otherwise taxable income is turned into tax free income.
Is the reciprocal IFISA a legal tax saving product?
The tax saving effects are inherent in the ISA product and there are no provisions that render the reciprocal IFISA illegal. There are no “connected parties” provisions associated with the IFISA. However, to confirm this view, we have recently asked Michael Sherry FCA of Temple Tax Chambers for his opinion on the legality of the reciprocal IFISA and his advice is due before the end of 2017. Michael specialises in advising SMEs and high net worth individuals and is not only head of his Chambers but a Fellow of the ICAEW so is well placed to be able to advise on this question.
How much can be invested in an IFISA?
The current annual subscription for IFISAs in the 2017/18 tax year is £20,000 but funds already in other ISAs such as a stocks and shares ISA can be transferred into an IFISA.
Can a lender ask for his loan to be repaid early?
Yes. All such requests should be made to the borrower in the first instance. If the borrower declines to make an early repayment, the loan parts can be sold on the secondary market at a premium or discount determined by the lender.
Can the borrowing entity redeem the loan early?
Yes. The loan can be paid back early at the discretion of the borrowing entity, together with the interest for the whole month in which the loan is repaid. There are no early repayment fees.
What security is taken from the borrowing party?
All loans are secured by a personal guarantee from the principals of the business taking the loan on the basis of joint and several liability.
What are the costs involved?
The loan arrangement fee for a reciprocal IFISA is 3.25% of the loan amount, paid by the borrowing party and taken from the loan proceeds. The fee for a normal peer to business loan – whether IFISA monies are used or not – is 5% of the loan amount. There is a small charge of £45 paid by the lenders for transfers into the IFISA from other ISA accounts. If no transfers are made, there are no fees for the lending party.
Where is the lender’s money kept until paid over to the borrower?
All cash in an IFISA account is kept in a regulated client account with a major UK clearing bank.