This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.
Summary and implications
On 9 August 2016, HMRC announced that debt-based securities available through crowdfunding platforms may be held within an Innovative Finance Individual Savings Account (IFISA) with effect from 1 November 2016.
At the moment, debt-based securities, such as debentures or bonds, can only be held within a stocks and shares Individual Savings Account (ISA). However, following a consultation last year, HMRC has published draft regulations extending the range of investments that may be held within an IFISA to include debt-based securities available through crowdfunding platforms (as long as these securities fulfil certain conditions). This could increase access to finance for crowdfunded debt-based securities, as investors may now benefit from the tax advantages of having an ISA wrapper around such investments.
These draft regulations are now open for technical consultation, and those who wish to respond must do so by 5 September 2016.
Debt-based securities that may be offered
Broadly, investments need to meet the following criteria to be held within an IFISA:
- the investments must be debt-based securities which are transferable securities issued by a company or charity;
- the investments must be arranged by a crowdfunding platform;
- the crowdfunding platform must treat the investor as its client, must undertake, on behalf of the investor, to make and receive payments in respect of the investment and must exercise rights under or in respect of the investment;
- the investment must not be part of a tax avoidance scheme;
- the investment must not have been made available to the investor due to their employment status (or other similar status);
- the investment must not be made by an investor who is connected to the issuer of the debenture;
- the investment must not be connected with any other investment made by the investor outside the IFISA investment; and
- the investment must have been made on genuine commercial terms.
Practical impact
Investors may now find investment in debt-based securities available through crowdfunding platforms more attractive due to the tax advantages of IFISAs. Measures may now be taken to ensure that such investments meet the conditions summarised above.
Firms wishing to provide IFISAs will need to make an application to HMRC and meet the general requirements that apply to all providers of ISAs. HMRC envisages that the costs are likely to be negligible, and include costs for:
- setting up the IFISA, including developing systems for account opening and reporting to the HMRC; and
- complying with on-going ISA requirements, including processing ISA subscriptions, customer instructions, and reporting ISA information to the HMRC.
For further information, please see the draft regulations, draft explanatory memorandum and tax impact note published by HMRC, which is available here.
