Tax deductions on default loans

Your choice. If you deduct, and they recover, the interest would be taxable in the year of recovery. You have to decide whether it's beneficial for you to reduce taxable interest this year but potentially increase taxable interest next year.

I'd like the tax statement altered.

FS show 'Capital losses from defaulted loans' and 'Capital recovered from defaulted loans'. Clicking on those figures expands to list the component loans.

FC show 'Principal defaulted and not recovered in the period', 'Recovery of principle defaulted in prior periods since 06/04/15' and 'Recoveries on loans defaulted prior to availability of debt relief before 06/04/15'.

I was thinking the same to offset some interest , although not clear I found this on the HHRC website .I shall wait and see what is recovered from the loan

Tax relief applies when there is no reasonable prospect of the peer to peer loan being repaid, it doesn’t apply to late payment.

The amount of relief available is the peer to peer loan still outstanding from the borrower, less repayments already received.

MoneyThing will you be updating your tax statement format? 

Thanks

Morning, 

I will ask our tax person for thoughts on this. My view is that we will not be in a position to crystallise actual losses in this tax year. The recovery processes are well underway for all defaulted loans and at present there is no reason to discount a full capital recovery, although of course it is not guaranteed.

On one of the defaults we have prepared lenders for a possible capital loss, however as we are pursuing other avenues this remains uncertain at present.  

*** Please note that MT does not provide tax advice and nothing in the message or thread should be interpreted as advice.The tax treatment of interest and reliefs on defaults may be subject to change and tax treatment will depend on your individual circumstances.***

Kind regards

Sophie

Hi Sophie, under HMRC's guidance on "Income tax relief for irrecoverable peer to peer loans" (see SAIM 12000), once a P2P loan has entered "legal recovery procedures such as liquidation, administration, receivership or bankruptcy" it can be treated as "irrecoverable" as if the security did not exist and legal recovery procedures were not available (as per SAIM 12050).

This means that capital tied up in defaulted loans where "legal recovery procedures" are underway can be offset against other P2P income earned in the tax year. If/when this capital and accrued interest is recovered, the recovery is then taxable as income in the subsequent tax year(s)

Many other P2P platforms have already adapted their Tax Statements to show sub-totals for capital deemed "irrecoverable" in the tax year and recoveries of capital and accrued interest made during the tax year. This is what lenders will need from MoneyThing too for tax year 2017/18. If you would like some example statements from other platforms (eg. Funding Circle, Assetz Capital, Funding Secure) that show the approach they have taken, feel free to PM me.

Ideally the modified Tax Statement should provide both the total figures for the above and also access to an itemised list of the individual defaults and recoveries that have been included (as per both Assetz and Funding Secure). This will avoid a lot of "What exactly have you included?" questions!

Exactly! (and succinctly put)

Hi SophieThing SteveT has given a clear description of how this should be treated. Please can I ask that this is looked at in some detail before the end of the tax year - so that the correct figures can be applied in a timely manner. I am a little surprised that your understanding was that losses had to by crystallized before being offset against income for tax.