Interest around property ISAs is growing. We've teamed up with Bricklane.com to deliver some answers to the most commonly-asked questions.
UPDATED ON 31 JULY 2018
In late 2016, we ran an article called How to become a property investor with £100. It explained how, by using a property ISA, anyone can get their hands on a slice of the residential property market with an initial investment of as little as £100.
Property ISAs, as offered by Zoopla partners Bricklane.com, are effectively stocks and shares ISAs into which savers can stash up to £20,000 for the 2018-2019 tax year which ends on 5 April (it's a 'use it or lose it' tax-free offer from the Government).
Any cash you pay into the account is pooled with that of other investors and then invested into one of two dedicated residential property funds (Real Estate Investment Trusts or REITs).
Each fund purchases buy-to-let homes in its target UK cities - one focuses on Leeds, Manchester and Birmingham, the other on London.
Your investment tracks movements in the value of these properties – and receives rental income on top. As the account is ISA-eligible, both your income and capital gains will be paid to you free of tax.
Online property ISAs can offer something of a lifeline to savers struggling with paltry interest rates, but it’s important to know what you’re doing – and that you are aware of the risks.
Our article gave rise to a few more detailed questions from our readers about property ISAs. So, with some help from Bricklane.com, here’s a follow-up Q&A to answer them.
Q. “I’ve had my ISAs for years. Is it really worth transferring them into a property ISA – and why?”
A. There are two main reasons you might consider transferring your ISA balance/s to a property ISA, explains Bricklane.com’s chief executive, Simon Heawood.
“Many customers are fed up with rock-bottom interest rates on their Cash ISAs, and prefer to invest in bricks and mortar rather than the stock market.
"Our returns are driven by rental income and property value changes, and have been strong to date (8.7% in the first year in our Regional Capitals fund*).
"Alongside, many people who used to be interested in investing in property through buy-to-let are now being put off by the new tax penalties. Our product is the most tax-efficient way to invest in UK residential property, with no tax on gains or income.”
Any decision should be made based on individual circumstances, and unlike with a Cash ISA, your capital is at risk.
Q. "Is this effectively peer-to-peer lending?"
A. No. Peer-to-peer platforms lend your money to other individuals or businesses – and, in some cases, this money is secured against property. With a Bricklane.com property ISA, you’ll actually own a share of the properties in the fund.
Q. "How and when can you take your money out – and are there penalties?"
A. There is no minimum term on investments, or penalties for withdrawals. And you can opt to request your money back at any time.
“You can do this by offering your shares for sale to other investors through the platform,” says Heawood. “Transactions are completed at two-week intervals.”
If, in exceptional circumstances there are no buyers, you can offer your shares at a discount if you want the money quickly. Alternatively, you can wait to sell them at market value which could take three months or longer.
However, Heawood stresses that – just like property – Bricklane.com should be viewed as a long-term investment, and that your capital is at risk.
Q. "How is my money protected?"
A. Investments in Bricklane.com are held by a custodian bank. The first £50,000 of your cash is protected by the FSCS in the unlikely event it was to become insolvent. FSCS won’t protect you if your investment doesn’t perform as expected.
Q. "What about investments of more than £50,000?"
A. The fund’s investments are made in real bricks-and-mortar property which has historically proved a secure long-term investment. But all investments are also held independently from Bricklane.com and safeguarded by an FCA-authorised depositary.
Bricklane.com is also partnered with some major organisations. Deloitte is its fund auditor and Allsop its independent property valuer.
Q. "Can I transfer existing ISA balances across?"
A. Yes, you can transfer across any existing ISA balances when you open the Property ISA. Once you’ve completed the form, Bricklane.com will handle all communication with your existing ISA manager.
Q. "Is there a maximum I can save into a property ISA?"
A. There’s no upper limit to amount you can save, it’s just that the tax-free element on the returns are capped to your annual ISA allowance or – if greater – the value of your existing ISAs if they’ve been transferred from elsewhere. Bricklane.com has investors from £100 up to well above £100,000.
Q. "Could I unwittingly be investing in unscrupulous landlords?"
A. Touchstone, a major national property manager, is responsible for managing the properties owned by the funds, “ – so tenants are in safe hands,” says Heawood.
He adds that the Bricklane.com team – many of whom are renters themselves – is in full support of a better renting experience for all.
Tenants living in properties owned by the funds are given three-year tenancies as standard, with rent rises capped to inflation, and don’t pay tenant fees. “We’re doing this not only because it’s the right thing to do, but because it produces better returns for our customers,” he adds.
Q. "What expertise does the Bricklane.com team have in property?"
A. Heawood says that, among the team are investment advisors who have more than 100 years’ combined experience at senior levels in the property industry.
This includes Chris Strickland (former chair of the Peabody Trust housing association) and Will Rowson (former chief investment officer of CBRE Global Investors EMEA). All acquisitions are approved by Craig Hallam who’s transacted more than £5bn of UK residential property.