Withdrew funds from ISA after P2P investment went sour

ISA transfers between different types can only be carried out in cash so you can only move money from an IFISA if it's in liquid cash form. Many ISA transfers can be carried out on a partial basis without needing to move everything but that's not a universal position, so if your ISA manager didn't permit this then that's their prerogative to do so.

Transfers need to be initiated by the receiving provider, i.e. Vanguard in this case - it's not clear if that's 'the company' you refer to but in any case, it's a done deal now if you've chosen to withdraw the money from its ISA wrapper to lose its tax-free status, as this is irreversible (except for a self-transfer option applicable only to cash ISAs)*.

If it's any consolation (unlikely) you're far from alone in finding that liquidity of P2P investments isn't what you expected it to be - if you actually have evidence that the company concerned was actively frustrating your attempts to release your investment then you might have some sort of case against them though?

* Edit: if the IFISA is a flexible one then you can return the funds to it temporarily ahead of a transfer if you're prepared to accept the risk of the company failing, leaving this until later in the tax year if you like.

There are really no reasonable grounds for refusal to transfer an IF ISA that contains unsold loan parts, especially if there are no contributions from the current tax year. Some providers will transfer all of the cash held within the IF ISA and proceeds of any loan parts that can be immediately sold, followed by periodic transfers of income and returned capital for up to a year. After a year, anything remaining would be paid out to you once liquidated and would lose their ISA status, but this is usually preferable to not transferring at all, or initiating multiple partial transfers.

I'd say there are grounds for complaint against your IF ISA provider, you should name them because others would benefit from knowing. Saying it is the one with negative publicity about investors not being able to withdraw their funds doesn't really narrow it down - it could be Lendy, FundingSecure (both now in administration), MoneyThing, Funding Circle or a number of others.

If you withdrew the ~£19k during this tax year, then it would not be too late to replace it and transfer what's left in the IF ISA to Vanguard. Again, knowing the provider would make it easier to understand whether there is any appreciable risk in doing so.

Regarding the possibility of replacing the funds temporarily before the end of the tax year:

What would happen if your P2P platform went belly up while the prior year flexible IF ISA funds were in your hands rather than in your P2P ISA account?

Would HMRC allow you the ISA availability else where?

Beyond_Reason wrote: »

Dear Masonic, thanks for your reply.

The P2P company in question is Funding Circle. I avoided naming them in the first instance because I am looking to find a solution rather than have a moan, although I can honestly say that my experience so far has not been great.

I thought as you did that there was no reason why the readily-available funds could not be transferred, but in the previous post eskbanker stated that this was the prerogative of the ISA manager, and down to their company policy. Please see the email I received from FC regarding this...

I am contacting you today in regards to your ISA transfer out request.

I have had a look into your Funding Circle ISA account and I can see that you still have available loan parts which you are able to sell. Before we can initiate the transfer out request, all available loan parts must be sold.

To sell your loan parts, click on the 'Sell' tab on your account and enter the monetary amount you'd like to sell.

Once sold, we can then proceed with the transfer out request. Please let me know if I can assist any further.

If I was 100% certain I could transfer funds back into my Funding Circle holding account without them reinvesting in loans, then I would do so. However, FC has now changed their policy regarding the sale of loan parts and I believe it will now take years until they can all be sold, or until the loans are fully paid off, or written off.

Their own T&Cs state:

"31.3 You may request that your Funding Circle ISA be transferred to another ISA Manager who is willing to accept it without the loss of the tax exemption under the ISA Regulations. Subject to clause 31.5, you can transfer:

in respect of the current tax year, the whole (but not part only) of the current year’s subscriptions to your Funding Circle ISA; and
in respect of previous tax years, the whole or part of any previous years’ subscriptions."

So they permit partial transfer of money paid in during previous tax years. Therefore, you should not have been denied the option of transferring your cash balance across to Vanguard.

masonic wrote: »

If you have made flexible withdrawals from an IF ISA and the provider goes bust, then nobody knows what would happen - it is uncharted territory (also the FS default could throw up some precedent as it progresses). Either, HMRC could allow flexible withdrawals to be included in the balance in the ISA Reinstatement Certificates issued to ISA holders, or it could not.

The second question is easy to answer: money flexibly withdrawn from previous tax years cannot be replaced elsewhere and cannot be replaced at all if the ISA in question is transferred to another provider.

Thanks. Have none of the P2P casualties been IF ISA providers? Or they haven't gone completely 'bust'?