Can you wrap an ISA around a property investment?

alonso_14

Are ISAs only available as products to purchase, or can you use your allowance by wrapping it around an existing investment? I ask, as I inherited an interest in 3 properties from my father. This provides an income and, I imagine, will work effectively as my pension later in life. I can't take out any of my interest without selling property, which I don't want to do. However, I wondered if there is anyway of using my ISA allowance each year to effectively wraparound an increasing amount of my overall investment?

refluxer

No, I wouldn't have thought so.

This link makes it clear what you can include in an ISA... https://www.gov.uk/individual-savings-accounts/how-isas-work

What you can include in your ISAs

Cash ISAs can include:

• savings in bank and building society accounts
• some National Savings and Investments products

Stocks and shares ISAs can include:

• shares in companies
• unit trusts and investment funds
• corporate bonds
• government bonds

You cannot transfer any non-ISA shares you already own into an ISA unless they’re from an employee share scheme.

Lifetime ISAs may include either:

• cash
• stocks and shares

Innovative finance ISAs include:

• peer-to-peer loans - loans that you give to other people or businesses without using a bank
• ‘crowdfunding debentures’ - investing in a business by buying its debt

You cannot transfer any peer-to-peer loans you’ve already made or crowdfunding debentures you already hold into an innovative finance ISA.

dunstonh

Can you wrap an ISA around a property investment?

Thankfully not.

PosterBoy77

dunstonh said:

Can you wrap an ISA around a property investment?

Thankfully not.

Not entirely true. You can use the directors loan ISA offered here :  https://www.rebuildingsociety.com/dla-isa/

The ISA money can be lent to your own limited Company, which itself could buy an investment property and would pay interest back to the ISA.

masonic

mikael said:

dunstonh said:

Can you wrap an ISA around a property investment?

Thankfully not.

Not entirely true. You can use the directors loan ISA offered here :  https://www.rebuildingsociety.com/dla-isa/

The ISA money can be lent to your own limited Company, which itself could buy an investment property and would pay interest back to the ISA.

Could that be done without selling the property? The OP didn't want to do that. As it seems the property is jointly owned with others, perhaps the OP's own interest could be sold into a limited company without impacting the other owners. In which case, there would just be the capital gains considerations on the OP's interest. Seems like there would need to be some creative accounting to make this work in practice, and as a tax avoidance strategy, some potential risks for which advice would be recommended.

jimjames

mikael said:

dunstonh said:

Can you wrap an ISA around a property investment?

Thankfully not.

Not entirely true. You can use the directors loan ISA offered here :  https://www.rebuildingsociety.com/dla-isa/

The ISA money can be lent to your own limited Company, which itself could buy an investment property and would pay interest back to the ISA.

That looks like a very useful idea. Interest paid back to your ISA so a win-win. Anyone see the downside of that process?

masonic

jimjames said:

mikael said:

dunstonh said:

Can you wrap an ISA around a property investment?

Thankfully not.

Not entirely true. You can use the directors loan ISA offered here :  https://www.rebuildingsociety.com/dla-isa/

The ISA money can be lent to your own limited Company, which itself could buy an investment property and would pay interest back to the ISA.

That looks like a very useful idea. Interest paid back to your ISA so a win-win. Anyone see the downside of that process?

How were you thinking about the process working in practice? For downsides to be considered, it would be necessary to understand the exact process. I was thinking something along the lines of the following

1) Set up Limited company with OP as sole director

2) Director makes a loan of £20k to company

3) Company purchases £20k interest in property from director

4) Director invests £20k proceeds in IF ISA

5) Company takes out £20k loan via P2P platform funded by director using the IF ISA. Initially this could be for a Wonga Loans type interest rate over a period of 1 year, but can be adjusted downwards over successive 1 year terms

6) Wait until 6th April, goto (2)

Maybe step 6 isn't needed. Maybe it could just be done with £1 and an astronomical interest rate.

jimjames

masonic said:

jimjames said:

mikael said:

dunstonh said:

Can you wrap an ISA around a property investment?

Thankfully not.

Not entirely true. You can use the directors loan ISA offered here :  https://www.rebuildingsociety.com/dla-isa/

The ISA money can be lent to your own limited Company, which itself could buy an investment property and would pay interest back to the ISA.

That looks like a very useful idea. Interest paid back to your ISA so a win-win. Anyone see the downside of that process?

How were you thinking about the process working in practice? For downsides to be considered, it would be necessary to understand the exact process.

I wasn't thinking of the property angle, just an ISA loan to my Ltd company so essentially just steps 4 & 5 that means the ISA earns 13% interest paid out from the company which reduces the corp tax bill and is received by the director anyway. It seems in the "too good to be true"  realm.

masonic

jimjames said:

masonic said:

jimjames said:

mikael said:

dunstonh said:

Can you wrap an ISA around a property investment?

Thankfully not.

Not entirely true. You can use the directors loan ISA offered here :  https://www.rebuildingsociety.com/dla-isa/

The ISA money can be lent to your own limited Company, which itself could buy an investment property and would pay interest back to the ISA.

That looks like a very useful idea. Interest paid back to your ISA so a win-win. Anyone see the downside of that process?

How were you thinking about the process working in practice? For downsides to be considered, it would be necessary to understand the exact process.

I wasn't thinking of the property angle, just an ISA loan to my Ltd company so essentially just steps 4 & 5 that means the ISA earns 13% interest paid out from the company which reduces the corp tax bill and is received by the director anyway. It seems in the "too good to be true"  realm.

If it were possible, then everyone with a BTL property or profitable Limited company should be filling their boots. There would be some fees of course, but the tax saving would surely vastly outweigh that for those in the know.

spider42

In many cases a director can receive tax free interest from their own company anyway. The ISA may well be an unnecessary complication. The optimum remuneration strategy for a director of an owner managed company is typically salary at the secondary NI threshold (£9,100 in 22/23) and then the rest dividends. But because there is £5,000 at the 0% starting rate for savings and the £1,000 savings allowance, if they receive interest of up to £9,470 on top of the £9,100, then that interest is taxed at nil for the director and the company gets CT relief. And then you can then reduce dividends accordingly (as they have been replaced by the interest) which generates a further Income Tax reduction for the director.

No extortionate fees, and the ISA allowances are still available to invest elsewhere.

masonic

spider42 said:

In many cases a director can receive tax free interest from their own company anyway. The ISA may well be an unnecessary complication. The optimum remuneration strategy for a director of an owner managed company is typically salary at the secondary NI threshold (£9,100 in 22/23) and then the rest dividends. But because there is £5,000 at the 0% starting rate for savings and the £1,000 savings allowance, if they receive interest of up to £9,470 on top of the £9,100, then that interest is taxed at nil for the director and the company gets CT relief. And then you can then reduce dividends accordingly (as they have been replaced by the interest) which generates a further Income Tax reduction for the director.

No extortionate fees, and the ISA allowances are still available to invest elsewhere.

Interesting thanks. In the case of someone who has inherited the interest in the property, and presumably has a separate taxable employment income, this DLA scheme might still be of interest.