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Green energy ISA allows you to invest in renewable tax-free growth bond

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Abundance Investment has launched a new type of ISA allowing users to invest in a range of renewable energy bonds where returns are tax-free.

Abundance Investment is believed to be one of the first companies in the UK to launch the Innovative Finance ISA (IFISA), allowing savers who use peer-to-peer platforms to come under the tax-free ISA wrapper.

As part of Abundance’s new ISA offering, individuals will be given the opportunity to invest directly in individual projects with an environmentally-friendly focus, via long-term debentures or bonds, with an average rate of return of 6%.

And under the new IFISA initiative, investors will have the freedom to cash in the bond earlier than the headline term by trading to others (more on this below).

There are currently two schemes investors can choose from, with more to follow in the near future:

Swindon solar bond

This 20-year bond will fund a new solar farm on a council-owned former landfill site at Chapel Farm in Blunsdon, Swindon.

The bond will have an average annual rate of return of 6% over the 20-year term, paid in twice yearly instalments.

Chapel Farm will be managed by a new PLC, wholly owned by Swindon Borough Council, and will start to generate energy by spring next year. It will cost £5.4m to construct, with £3m coming from the council’s investment, and the remaining £2.4m from investors via Abundance.

Of the £2.4m needed from ordinary investors, so far, 348 investors have invested £846,000 with £1.6m left.

It follows the launch of an earlier popular council solar bond, again in partnership with Swindon Borough Council, which ‘sold out’ a month early.

Thrive renewables bond

The seven-year bond from Triodos Bank is available through Abundance and offers 5% returns on your investment, dependent on the continued success of the scheme.

It aims to develop, construct and operate renewable energy projects and Thrive Renewables so far owns and operates 15 renewable energy projects.

Since launch, 536 investors have subscribed to the bond via the Abundance ISA, investing a total of £1.98m. Abundance confirms that it’s still looking for £2.42m of investment in the scheme. It expects to reach the limit by 9 December.

What else do I need to know?

Abundance confirms there are no initial investment fees or ongoing charges for holding the ISA product. Instead it makes its money via fees paid by the companies behind the bond, with some of the charges paid back to individual investors.

With both types of bond, the minimum investment amount is £5 and as per the usual annual ISA limits, you’ll be able to deposit up to £15,240 this tax year. However, if you subscribed to an ISA in previous tax years, the higher amount can be transferred into the Abundance ISA.

Holdings in this ISA can be traded at any time to others via the Abundance website, giving investors the chance to cash in early, without being hit by any penalties. You’ll need to agree on a buy and sell price and Abundance says the only way you’ll lose out is if you can’t sell or you sell beneath the current value of the holding.

Abundance debentures quote returns in terms of Internal Rate of Return (IRR). This means the investor receives regular payments of both their original invested capital and income from the projects which repay their investment over time rather than a single payment at maturity.

While the new IFISA rules allow you to subscribe up to £15,240 in the 2016/17 tax year and you can choose to split your ISA allowance across cash or stocks & shares for instance, you can only invest in one IFISA in each tax year.

How safe are these bonds?

Abundance says investors are afforded a “matrix of protections”. The Debentures or bonds offered are heavily regulated, with tight controls on transparency and what the money is used for. Under the Financial Conduct Authority’s regulation, Abundance is required to hold regulatory capital in reserve in the event of the platform failing.

Further, if investors suffer loss or detriment through the negligence of the platform, Abundance confirms customers are entitled to recourse via the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS).

At a project level, as the solar bond is co-invested by Swindon Borough Council, investors benefit from the lower risk this delivers.

Abundance adds that over its four years, it’s not had any project failures or defaults.

‘Money will work harder and boost the UK’s green economy’

Bruce Davis, cofounder and joint managing director of Abundance, said: We want to turn investing in ISAs from something gathering dust in the forgotten corner of a bank or riding the roller coaster of global stock markets into something that makes a difference in the real world. Investors’ money will be working harder than it would in the bank, boosting the UK’s green economy and sustainable infrastructure, and returns will be tax-free.”

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