But given the current investment landscape amid COVID-19 impacting much of the financial sector globally, investors are left wondering which ISA is the best to invest their hard earned money into this tax year, and is now the best time to invest?
One area of growth the ISA market has seen a rapid incline in 2019/2020 - which we go on to discuss in more detail - is the Innovative Finance ISA (IFISA). As of February 2020, £1.14 billion has been invested into IFISAs since its launch in 2016, and it’s no surprise to learn why.
In the current economic climate, many investors will no doubt be looking at how their future investments will not only perform, but the impact they have on the UK's ability to bounce back even stronger post lockdown.
Learn more about the 5 ways in which you can make an impact with an IFISA from CARLTON Bonds this tax year.
1. Tax free returns
Marking the start of the new tax year, it seems timely to begin with the primary reason many investors are looking towards adding an IFISA into their investment portfolio.
Individual Savings Accounts (ISAs) are a way of making investments without paying tax on the returns your investments make. At present, there are four main types of ISA;
- Cash ISA
- Stocks and Shares ISA
- Innovative finance ISA
- Lifetime ISA.
You can put money into one of each kind of ISA each tax year, with the maximum you are able to invest being £20,000 in 2020/21.
Because the CARLTON Bonds IFISA is fixed term (with bond series' on offer between two and four years), a benefit of investors choosing to invest earlier in the tax year is that their tax free returns have more time to mature.
2. Making your money work harder
Deciding which type of ISA to invest into to maximise those tax free returns is the question many experienced investors are now asking themselves in the current climate.
With the Bank of England base rate cut to 0.1%, this has in-turn impacted Cash ISA rates - with the best returns hovering at around 1% per annum. Nevertheless, Cash ISAs are still a safe haven in the current economic climate, with up-to £85,000 protected via the Financial Services Compensation Scheme (FSCS).
In recent weeks, we have also seen the impact of COVID-19 having a global effect on stock markets, with hundreds of billions wiped off their value in just a few short days.
When comparing a Stocks and Shares ISA against other types of ISA in terms of their return potential, a Stocks and Shares ISA could give you much higher returns than that of a Cash ISA. However, Stocks and Shares ISAs are best suited to investors with a long term outlook, allowing time for any losses to recover fluctuations over the years.
It is also important to remember that a Cash ISA (a savings account) and Stocks and Shares ISA (an investment product) cannot be compared like for like. With a Stocks and Shares ISA, capital is not protected should your investments fail.
In these scenarios, IFISAs can provide a very welcoming middle-ground, allowing for an amount of risk - and therefore an increased risk/return profile - to be introduced into a portfolio, but at a level that could be considered manageable.
Read more: download the Innovative Finance ISA guide
At CARLTON Bonds our mission is to help you make your money work harder and generate higher returns than traditional mainstream savings and investment products. One of the most appealing features of a CARLTON Bonds IFISA is the high, inflation-beating target returns of 7.75% p.a. when compared to the deposit taking product of a Cash ISA.
The way in which higher rates of return are achieved - which can not be easily accessed through traditional investment routes - is by providing finance to experienced borrowers within the UK property market.
Funds are then deployed by our experienced lending team into a range of property assets and development projects across the UK. Your investment is repaid at the end of the two year or four year fixed term, with interest paid quarterly or at maturity.
Remember, an Innovative Finance ISA is an investment product not a savings product. As with all investments your capital is at risk and returns are not guaranteed.
However, if you're happy to take on more risk in search of higher returns, then the CARLTON Bonds 4 year fixed term IFISA bond has the potential to deliver tax free returns of 7.75% per annum. For higher-rate taxpayers this equates to 12.9% per annum.
3. Supporting a growing UK housing and commercial property market
Whilst our primary mission is to help you make your money work harder, your investment has the potential to deliver more than just higher tax free returns than traditional savings and investment products.
It is almost universally agreed that as a nation we are not, and have not been, building enough houses and the result is an acute shortage. In a time when the UK economy will need the alternative finance sector more than ever, your investment will help to fund the delivery of much needed housing schemes and commercial development projects.
House building remains close to historical low levels, and well below the government’s target levels of 300,000 new homes per annum. This is due to a combination of continued population growth and years of chronic undersupply.
The number of new homes registered to be built in the UK in 2019 topped 161,000, which represented a 13 year high.
However, this is still not enough to meet demand and, when supply can’t satisfy demand, prices must inevitably rise. Sure enough in November 2019, a Savills forecast stated that average UK house prices could rise by 15.3% from 2020-2024.
While this might be a headache for the government, it represents a golden opportunity for people with money to invest.
Historically, small house builders were a critical part of the supply market. In the late 1980s, 40% of new homes were built by small house builders and now the figure is closer to 12%. They are struggling to compete with national house builders partly due to the lack of access to development finance.
A continued period of conservative bank-lending has opened a gap in the market for these types of loans throughout all areas of the UK property sector. CARLTON Bonds generate returns by addressing this market need and provide much-needed development finance to highly experienced SME property builders.
4. Diversifying your investment portfolio
Different asset classes react differently in changing economic or market conditions, which is one big lesson investors can take from any economic downturn and not just the current pandemic we find ourselves in now. Whilst risk across any investment product cannot be mitigated, spreading your money and risk between different kinds of asset classes helps reduce the risk of your collective investment portfolio underperforming. In short, don’t put all of your eggs in one basket.
Whilst there is no single perfect example of an ISA portfolio, investors should consider what their own portfolio should be made up of to help them achieve their own investment goals.
For example, an investor with a £20,000 ISA allowance may be happy to keep a portion but not all of this money tied up for at least 7 years, with more risk factored in for the prospect of higher returns with a Stocks and Shares ISA.
The same investor may use another portion of their allowance to keep their money invested for around 2-4 years with the ability to receive regular returns on a quarterly basis, with a Property Bond IFISA such as CARLTON Bonds.
Whilst this is just one example of ways in which different types of ISA products could be suitable to form part of an investment portfolio, it is vital that advice should be sought from an independent financial advisor before investing into any type of investment product.
By taking a closer look at the underlying asset classes, it becomes clearer to see which type of ISAs would be best suited to your own objectives.
5. Investing in sectors and schemes that you have an interest in
Once investors have identified their goals and are clear on the asset classes that will make up that portfolio, only very few investment products offer the ability for individuals to have clear visibility on how their investment is being used to generate returns and in some cases the types of sectors they are actually investing into entirely.
Many Investors will each have their own sectors and industries they are interested in, be it as an ethical, economic or cultural interest. A feature of all IFISA products as a whole means investors are able to select which type of company or scheme their investment funds.
For investors who want to support the housing crisis in the UK whilst supporting the growth of regional jobs, this is where a Property Bonds IFISA may be suitable.
With a Property Bonds IFISA from CARLTON Bonds, investors are not only able to specifically see which schemes their investment is being used to fund, but because of close investor communications, investors can see specifically the number of houses that their investment has been used to build that helps meet the undermet demand for housing in the UK.
Another area in which has a direct measurable impact, is the number of people employed as a result of your investment.
An example of this would be a regional house builder who secures funding for a new residential housing development. On a scheme such as this, local companies such as plumbers and electricians are not only given the opportunity to tender and win work that directly grows their business, but also the ability to provide further jobs and in some cases apprenticeships and training, further filling a skills gap requirement.
Strengthening the UK economy for a stronger resurgence
Whilst the outlook across much of the investment landscape can look confusing in the current situation, one thing remains clear - we know there will always be a demand for housing. People will always need property, and in some of the biggest economic disasters of our time - such as the 2008 recession - the housing market came back stronger than ever.
A Property Bonds IFISA has the potential to offer some very beneficial rewards, from tax wrappers, and attractive target rates of returns to the ability to add diversification to a balanced portfolio. Arguably from an economic standpoint, one of the even more rewarding benefits many investors will be looking at is how their investment can make a real impact in the resurgence of a growing UK economy in which residential and commercial property has and always will be at the core of.
CARLTON Bonds Series 1 and 2 are now closed for investment with capital now fully deployed.
CARLTON Bonds Series 3 and 4 are now open for investment. You can find out more here.
The CARLTON Bonds product is available exclusively to experienced investors who are classified as either sophisticated investors, high-net-worth individuals or professional investors and have the knowledge and experience to make their own investment decisions. Investments are high risk and illiquid, your capital is at risk and returns are not guaranteed. Bonds are not protected by the Financial Services Compensation Scheme (FSCS).