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Post by nickhickman on Feb 25, 2018 16:45:24 GMT
This is an intellectual exercise rather than anything I am every likely to do, but am wondering ... would it make sense to get a loan via one P2P platform and then lend it out at a higher rate with another platform? Downsides I can see are the usual ones with making any P2P loan, plus the fact that two platforms get to take a cut. Upside is that one could take advantage of P2P lending even if one didn't have capital to invest. Interested to know if anyone does this. Perhaps it's common and I'm slow to realise the opportunity, or may be it's a dumb idea! Just seems like since P2P is promoted as offering good rates to both borrowers and lenders, that one could take advantage from both sides.
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cb25
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Post by cb25 on Feb 25, 2018 17:55:19 GMT
By the time that you have paid tax on the interest from the higher paying platform (as an individual you cannot offset the cost of the loan you have taken out) you will probably be making a loss, even before platform fees and default risk. SEveral do the similar thing with cheap loans/mortgages and interest free credit cards. Eg I have a 2.9% loan from Sainsbury. Say I invest with no cash drag, receiving 12%. I pay tax at 60%  . Of that 12%, 7.2 goes in tax, 2.9 goes back to sainsbury, meaning I make 1.9% for my trouble, and hold the default risk. Obviously it is less dire at a lower rate of tax, but even so I cannot see making a profit borrowing from a P2P due to fees. Why would you pay tax at 60% ? Use an IFISA ?
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cb25
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Post by cb25 on Feb 25, 2018 18:16:54 GMT
I think there's two ways of looking at the 60% tax rate, the first is 'sh*t I pay a lot of tax', the other is 'yippee, I make loads of money'.
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jonah
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Post by jonah on Feb 25, 2018 19:59:50 GMT
0% credit cards (stoozing) provide a sizeable percentage of my p2x pot. With those though, as long as I make a post tax, post defaults return, it’s mine.
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poppyland
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Post by poppyland on Feb 25, 2018 20:59:55 GMT
Our P2P pot is entirely made up of mortgage money. When we bought our most recent house the bank offered to lend us a lot more than we actually needed, at a fixed rate of 2.5%, so we took everything they offered and invested the surplus. We pay the mortgage monthly payments out of our self-employed earnings, so any P2P interest we receive gets reinvested. Despite some setbacks and disappointments, our investment fund has grown in the two years that we've been doing this by a lot more than the 2.5% we pay in order to have it. Our hope is that by the time the mortgage is all paid off, we will have a nice big pile of cash for our retirement years and to help out our children and grandchildren.
I often see the advice given "if you inherit money, don't necessarily use it to pay off the mortgage - it may make more sense to invest it". On the other hand, it's often considered a bad idea to borrow extra money on your mortgage in order to invest. But in many ways, the two are just sides of the same coin.
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poppyland
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Post by poppyland on Feb 25, 2018 21:06:07 GMT
I assure you that it is the former! Ironically, it is my venture into P2P that takes me into the 60% zone, and about 50% of my investment is leveraged. leopard cat, do you live in Belgium? That's the only place I know with 60% tax. or are there others?
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jonah
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Post by jonah on Feb 25, 2018 21:18:59 GMT
I assure you that it is the former! Ironically, it is my venture into P2P that takes me into the 60% zone, and about 50% of my investment is leveraged. leopard cat, do you live in Belgium? That's the only place I know with 60% tax. or are there others? Uk... there is a zone just over 100k where the rate is 50% but also reduces you personal allowance, resulting in an effective rate of 60%.
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Post by Deleted on Feb 26, 2018 9:51:35 GMT
When I used to employ people... we always did deals with people who fell into these tax hollows, for instance making extra SIPP payments, shorter hours, etc etc (I had accountants who understood that 2+2= whatever you want it to). It might be worth asking, after all, you only get 85 years life.
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kmac
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Post by kmac on Feb 26, 2018 10:14:38 GMT
after all, you only get 85 years life. Thanks Bobo, I am 86!
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Post by Deleted on Feb 26, 2018 10:28:18 GMT
after all, you only get 85 years life. Thanks Bobo, I am 86! borrower :-)
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Post by peerlessperil on Feb 26, 2018 14:09:56 GMT
There are several "blips" where the marginal rate of income tax can approach what might be described as "extortionate"... 1. Between £50k and £60 you start getting your child benefit clawed back. If you have >2 kids the marginal rate can climb above 70%. So a single earner family on £98k loses all child benefit whilst two parents earning £49k each keep it all. We should all thank George Osbourne for this quirk. 2. At £100k HMRC starts clawing back your personal allowance so its 62.5% on 100-123k (including the NI Upper Rate) 3. At £150k your ability to claim tax relief on pension contribution kicks in and the effective marginal tax rate climbs above 60% again There is no need to pay these income tax rates, as the following can usually mitigate: - Give to charity to get your "adjusted net income" (HMRC defined) back below one of these thresholds
- For those earning <£150k, make additional pension contributions. If you use a SIPP you may still be able to access 25% tax free at 55 (if they don't change the rules....again). Plus a SIPP is now very useful for inheritance planning.
- Talk to your employer about salary sacrifice/salary exchange/childcare vouchers/cycle to work (but keep an eye on the pension impact if you are in a scheme like the NHS scheme)
- Transfer any investment income to your spouse
- Use VCT/EIS/SEIS to gain tax relief to offset what can't be mitigated
- Pay into a pension for non-earners in your family (up to £3.6k gross from memory)
- Leave the country (there's no inheritance tax in Australia, if you have any inheritance left after the supermarket duopoly relieve you of it)
These are my own thoughts, not to be taken as advice.
The UK tax system is now so complex that you need to be a spreadsheet wiz to plan ahead (or hire an advisor who's bought the software from Absolute). The recently introduced savings allowances have introduced optionality into the tax return, and even HMRC's online self assessment calculator was spitting out incorrect calculations last year for some taxpayers after they botched the conversion from their excel model.
This problem will only get worse as tax simplification never suits politicians once they are voted in and find themselves responsible for extracting money out of voters as painlessly as possible. The more confusion and ignorance the better.....
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cb25
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Post by cb25 on Feb 26, 2018 14:16:32 GMT
re "Pay into a pension for non-earners in your family (up to £3k gross from memory)" from peerlessperil " Tax on your private pension contributions If you don’t pay Income Tax You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you: - you don’t pay Income Tax, for example because you’re on a low income - your pension provider claims tax relief for you at a rate of 20% (relief at source)" www.gov.uk/tax-on-your-private-pension/pension-tax-relief |
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Post by peerlessperil on Feb 26, 2018 14:37:12 GMT
Yes - £3.6k gross contribution (have now added the decimal point to my original post), which is £2.88k net
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markr
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Post by markr on Feb 26, 2018 15:26:38 GMT
I don't think borrowing from P2P sites would be the best way to do this because P2P isn't competitive at the low-cost, prime borrower end of the scale, not many lenders would be happy with the 2.9% before fees that Sainsburys offered above for example. You'd likely be breaking the Ts&Cs on most loans by using the funds to invest, although this is easily worked around or simply ignored.
I think, as others have said, outside of an IFISA the tax payable will seriously dent any profit, so the only reason I could see to do this is to prevent losing any of your year's ISA allowance if you don't have liquid funds to top it up yourself. Even then, you'd really want another source of income to pay the loan to avoid having to take money back out of your ISA.
Bear in mind that the base rate is expected to tick slowly upwards, while P2P lender rates have been steadily falling, and also remember that increased rate generally means increased risk, so don't be tempted to use a platform's "headline" rate in your calculations, but make a reasonable or even pessimistic estimate of losses. Finally, don't forget the cash drag associated with having a lump sum to invest.
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mikeymike
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Post by mikeymike on Feb 27, 2018 23:27:13 GMT
I think there's two ways of looking at the 60% tax rate, the first is 'sh*t I pay a lot of tax', the other is 'yippee, I make loads of money'. Standard glass half-empty/full concept that assumes all the drinkers are equal in the first place; of course this isn't the case; when the disparity between disposable and absolute wealth is increasing. Unfortunately one rarely hears :'yippee, I make loads of money, How can I make the world better?
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