PEER-TO-PEER investments have long been known for their superior returns to the mainstream markets but investors may have to settle for less with an Innovative Finance ISA (IFISA) in future tax years.
Among the platforms that have already launched an IFISA, most charge rates similar to their mainstream products at the moment, but P2P property lender CapitalRise has said the return on its tax-free product will be 0.5 per cent lower than its non-ISA version.
“The forecast annual return for an ISA investment is currently 0.5 per cent lower than the return on a standard investment to cover ISA administration costs,” a statement on the CapitalRise website said.
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“It costs us more than double this to administer the ISA, however as a special promotion to celebrate the launch of our IFISA, CapitalRise will cover the majority of these costs and only pass on 0.5 per cent to our investors.”
This is reflected in the mainstream savings and cash ISA markets, but other P2P platforms seem to be holding off from offering less so far.
“It is normal in the cash ISA market that rates offered on the cash ISAs are lower than those a normal savings account may offer by the same provider,” says Karteek Patel, chief executive of Crowstacker, which has offered an IFISA since April 2016.
“At present, we bear the costs of administering an IFISA account and therefore the rates of the underlying investments are unaffected to the investor.”
Filip Karadaghi, chief executive of buy-to-let platform LandlordInvest, says the costs of administering the IFISA are not material enough yet to charge a fee.
Read more: LandlordInvest adds flexibility to IFISA
“This is might change going forward as we are potentially looking to outsource our ISA administration to a third-party provider,” he says.
However, other IFISA providers such as Landbay, which uses Goji for its administration, say they are offering the same rate, while Crowd2Fund has questioned whether there really are any extra costs.
“The only direct cost we incur is our accountant as, like other ISA providers, we’re required to supply information about our IFISA accounts to HMRC each tax year,” a Crowd2Fund spokesman said.
“At Crowd2Fund we only take a one per cent annual fee on interest and capital repayments to the investor. This is nominal considering the average interest rate investors can potentially earn is 8.7 per cent before fees and bad debt.”