markb
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Post by markb on Nov 14, 2017 13:40:52 GMT
Good question, nick. However, is that the full is-it-interest-like test? I thought that cashback is always treated as an inducement to invest, so not subject to income tax. I thought that the "is it paid by the borrower or the platform?" test was vital for scenarios such as ABL's instant returns payments, which accrue daily (like interest, so meet the "time dependent accrual?" part of the test) but are paid by them rather than the borrower (so fail that part of the test).
I agree that it would be preferable if COL are paying us the cashback, because then we'd have 2 reasons rather than 1 to justify why it's exempt from income tax, but I'm not certain that it's essential.
In case it's not obvious, I have no training/qualifications in this area, and the above is a personal opinion, not a legal opinion/advice!
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Post by Collateral Rep on Nov 14, 2017 14:11:43 GMT
Hi nick, When assessing loans, if we believe incentives are required we advise the borrower and add it as an admin fee, which is deducted at drawdown. Many thanks, Gordon
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Post by Badly Drawn Stickman on Nov 14, 2017 14:38:45 GMT
Hi nick , When assessing loans, if we believe incentives are required we advise the borrower and add it as an admin fee, which is deducted at drawdown. Many thanks, Gordon Given that I make that a technically possible £44000 gesture they must have been very keen for it to fill. Could you possibly tell us what the average cashback was on the overall loan? I am guessing nearer 1% than 4%.
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elliotn
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Post by elliotn on Nov 14, 2017 14:54:03 GMT
They do make it sound like the borrower agrees to pay but at different blended rates costs would be 33k @ 3%, 22k @ 2% and 11k at 1% vs 3k saving per month with SM at 300k which will gradually decline albeit with spikes particularly near term. Over 6-12 months they may be able get their money back plus more although they have had to hand over any normal SM savings expected from sales over the lifetime of a loan via the CB. Even as a loss leader, attracting new lenders and borrowers, who may lead to repeat business (which we have already seen in lenders and borrowers) Borrower gives it up from their drawdown so we get up to 4% and Coll save SM interest = win-win (unless it takes you longer to flip than you got in CB obviously ).
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nick
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Post by nick on Nov 14, 2017 16:16:47 GMT
Good question, nick. However, is that the full is-it-interest-like test? I thought that cashback is always treated as an inducement to invest, so not subject to income tax. I thought that the "is it paid by the borrower or the platform?" test was vital for scenarios such as ABL's instant returns payments, which accrue daily (like interest, so meet the "time dependent accrual?" part of the test) but are paid by them rather than the borrower (so fail that part of the test). I agree that it would be preferable if COL are paying us the cashback, because then we'd have 2 reasons rather than 1 to justify why it's exempt from income tax, but I'm not certain that it's essential. In case it's not obvious, I have no training/qualifications in this area, and the above is a personal opinion, not a legal opinion/advice! I have some basic tax knowledge, but by no means am I an expert. My understanding is the tax treatment is driven by the nature of the payment, ie what is it being paid in consideration for. If is being paid directly by a borrower in consideration for borrowing money that is treated as interest. The key is that the borrower is making a payment for being advanced funds. I don't think the time dependency is a significant factor as you can have loans with varying maturity and bullet interest payments which will always be deemed interest. In this case, Collateral have been told us that they are making the to us and the cost is being charged as an admin fee to the borrower. Therefore in my mind the cashback represents consideration for lending on their platform (not to them, but a third party borrower) from which they benefit rather than it representing any payment for lending money to them (they aren't the borrower) so I don't think the payment can be portrayed as interest that is subject to income tax. The view given by ABL's accountants on their instant returns is interesting - ie they consider it part of the capital cost of making the loan. I don't think that treatment quite works as the instant return is paid irrespective of whether the loan proceeds or not so you can have the situation where you have incurred a capital cost without an underlying loan transaction which doesn't quite hang right.
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markb
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Post by markb on Nov 14, 2017 19:21:39 GMT
The view given by ABL's accountants on their instant returns is interesting - ie they consider it part of the capital cost of making the loan. I don't think that treatment quite works as the instant return is paid irrespective of whether the loan proceeds or not so you can have the situation where you have incurred a capital cost without an underlying loan transaction which doesn't quite hang right. Good point. Although the fact that it's paid irrespective of whether the loan proceeds is further evidence that whatever it it, it's not like receiving an interest payment for the loan.
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GeorgeT
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Post by GeorgeT on Nov 14, 2017 20:57:43 GMT
surprise surprise now 311k on SM Yes, as expected, the cashback Hunters have dumped it all back on the secondary market there by clogging it up. This is the big defect of cashback without there being any rule about holding the loan for a particular time period and therefore holding the risk. I hope nobody buys the cashback hunters out thereby saddling them with the risk and also saving the platform some money to strengthen it for the rest of us.
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hazellend
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Post by hazellend on Nov 14, 2017 21:00:46 GMT
surprise surprise now 311k on SM Yes, as expected, the cashback Hunters have dumped it all back on the secondary market there by clogging it up. This is the big defect of cashback without there being any rule about holding the loan for a particular time period and therefore holding the risk. I hope nobody buys the cashback hunters out thereby saddling them with the risk and also saving the platform some money to strengthen it for the rest of us. It amazes me how some people are willing to gamble large amounts of money like 50k for cashback, on an investment they don't really want to be in. The cashback seems to be such a lure they are happy to sit out their interest for the duration of the loan.
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GeorgeT
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Post by GeorgeT on Nov 14, 2017 21:06:33 GMT
A problem it creates is that when people log in to the platform and they see masses of availability on the secondary market it doesn't create a very good impression and creates the impression that liquidity is bad and this may put some people off.
In fact liquidity of quality loans on COL is quite good as I have been doing some trimming over the last few days and have always managed to sell within 24 hours.
In my opinion this particular loan is not a quality loan and I therefore expect it to be a slow seller.
The cashback hunters are playing a risky game because as my mentor, CD, taught me, a loan can, in theory at least, default or be suspended from trading at any time.
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nick
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Post by nick on Nov 14, 2017 21:29:56 GMT
surprise surprise now 311k on SM Yes, as expected, the cashback Hunters have dumped it all back on the secondary market there by clogging it up. This is the big defect of cashback without there being any rule about holding the loan for a particular time period and therefore holding the risk. I hope nobody buys the cashback hunters out thereby saddling them with the risk and also saving the platform some money to strengthen it for the rest of us. Aren't we all cashback hunters? I was tempted to buy more than I otherwise intended and will seek to some of the loan down in due course. However, my base assumption is that they may not be an SM and will need to hold to term. The extra return does come with an initial liquidity penalty in the SM, but I'm not sure I would want the platform to impose a minimum holding period and effectively impose that illiquidity on me. The market is effectively doing this itself and I suspect the illiquidity will not last that long. Those that have overbought and are selling on the SM are effectively acting as underwriters taking on concentration risk and laying off the funding over an extended period to new lenders. I don't believe it will take long for the SM to clear, particularly as we enter into the traditionally quieter run-up to Xmas when loan activity dries up and investors scrabble to deploy funds in the limited opportunities available. Either way I'm not overly concerned in the SM in this loan being clogged up for weeks or even months in this loan. If you are relying on greater liquidity then that is a high risk strategy as liquidity often disappears when you most need it.......
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elliotn
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Post by elliotn on Nov 15, 2017 1:43:33 GMT
A problem it creates is that when people log in to the platform and they see masses of availability on the secondary market it doesn't create a very good impression and creates the impression that liquidity is bad and this may put some people off. In fact liquidity of quality loans on COL is quite good as I have been doing some trimming over the last few days and have always managed to sell within 24 hours. In my opinion this particular loan is not a quality loan and I therefore expect it to be a slow seller. The cashback hunters are playing a risky game because as my mentor, CD, taught me, a loan can, in theory at least, default or be suspended from trading at any time. Is your main bugbear it thwarts your strategy of secondary market recycling of your own loan parts (whether it be a CB loan or the SM impression it gives for your other loans)? To me it looks like an accelerated version of your exact strategy of not wanting to hold loans to term. They have four months to sell, let them be and save your sanctimony. Disclaimer - whilst holding judgement on those that choose a more tax efficient p2p strategy, I am holding my own loan parts. I have however put up small queue markers in each to georget it should the Christmas markets allow a little diversification .
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stevio
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Post by stevio on Nov 15, 2017 7:41:11 GMT
A problem it creates is that when people log in to the platform and they see masses of availability on the secondary market it doesn't create a very good impression and creates the impression that liquidity is bad and this may put some people off. In fact liquidity of quality loans on COL is quite good as I have been doing some trimming over the last few days and have always managed to sell within 24 hours. In my opinion this particular loan is not a quality loan and I therefore expect it to be a slow seller. The cashback hunters are playing a risky game because as my mentor, CD, taught me, a loan can, in theory at least, default or be suspended from trading at any time. Is your main bugbear it thwarts your strategy of secondary market recycling of your own loan parts (whether it be a CB loan or the SM impression it gives for your other loans)? To me it looks like an accelerated version of your exact strategy of not wanting to hold loans to term. They have four months to sell, let them be and save your sanctimony. Disclaimer - whilst holding judgement on those that choose a more tax efficient p2p strategy, I am holding my own loan parts. I have however put up small queue markers in each to georget it should the Christmas markets allow a little diversification . Agree, you cant complain just because someone did something you wanted to do, first. Its hardly unexpected, we have seen this on every CB loan. Loss of interest on the SM is actually helping CO provide CB on the next loan and the increased loan fill rate incentivizing them to continue the same strategy
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GeorgeT
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Post by GeorgeT on Nov 15, 2017 15:35:28 GMT
Is your main bugbear it thwarts your strategy of secondary market recycling of your own loan parts (whether it be a CB loan or the SM impression it gives for your other loans)? To me it looks like an accelerated version of your exact strategy of not wanting to hold loans to term. They have four months to sell, let them be and save your sanctimony. Disclaimer - whilst holding judgement on those that choose a more tax efficient p2p strategy, I am holding my own loan parts. I have however put up small queue markers in each to georget it should the Christmas markets allow a little diversification . Agree, you cant complain just because someone did something you wanted to do, first. Its hardly unexpected, we have seen this on every CB loan. Loss of interest on the SM is actually helping CO provide CB on the next loan and the increased loan fill rate incentivizing them to continue the same strategy I didn't want to invest in this loan and I didn't. If I'd wanted to cash dump in this loan to grab cashback I would have done. CB has little incentive to me. I'm told there are tax benefits but I won't be a taxpayer in this tax year. To me, the loss of liquidity is a bigger negative than the cashback is a positive. Besides, I only give this loan 4 out of 10. I aim to hold loans where liquidity will be red hot. The 14% and 15% COL loans are good examples of this, as are some of the high class 12%ers. What's the point of bagging, say 2 or 3% cashback, if you then find your parts stuck on the SM earning no interest for 2 months while you carry on holding all the risk. The cashback hunters don't bother me because I avoid the loans they pile into - so they don't affect my personal liquidity directly. However there may be an indirect effect on general platform liquidity because people tend to want what they can't get. Log into a barren SM and people are F5ing and sitting up half the night trying to grab something. When there's lots up for grabs on the SM it doesn't seem such an appealing thing to want. Scarcity creates demand and adds value, in a sense. I'm glad COL is saving on its interest bill thanks to these cashback hunters but in my opinion the way forward is higher rates not cashback. If a loan can't fill with a top rate then it's a duff loan. If cashback is used to enable duff loans to be funded, this must increase platform risk in the longer term as duffers are more likely to default.
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Post by charlata on Nov 15, 2017 16:59:31 GMT
I aim to hold loans where liquidity will be red hot. The 14% and 15% COL loans are good examples of this, as are some of the high class 12%ers. What's the point of bagging, say 2 or 3% cashback, if you then find your parts stuck on the SM earning no interest for 2 months while you carry on holding all the risk. I also give a high weighting to liquidity, but don't dare go near the 15%'ers. You'd only need one loan to default unexpectedly to wipe out alpha on the rest of the portfolio. If you rate the redemption yield on the eco village at 4/10, the 4th ranking charges must score around 1.5/10 on fundamentals. If they even merit a score. These loans are the P2P equivalent of ICO, great while there's an ample supply of greater fools....
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stevio
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Post by stevio on Nov 15, 2017 18:00:59 GMT
Agree, you cant complain just because someone did something you wanted to do, first. Its hardly unexpected, we have seen this on every CB loan. Loss of interest on the SM is actually helping CO provide CB on the next loan and the increased loan fill rate incentivizing them to continue the same strategy I didn't want to invest in this loan and I didn't. If I'd wanted to cash dump in this loan to grab cashback I would have done. CB has little incentive to me. I'm told there are tax benefits but I won't be a taxpayer in this tax year. To me, the loss of liquidity is a bigger negative than the cashback is a positive. Besides, I only give this loan 4 out of 10. I aim to hold loans where liquidity will be red hot. The 14% and 15% COL loans are good examples of this, as are some of the high class 12%ers. What's the point of bagging, say 2 or 3% cashback, if you then find your parts stuck on the SM earning no interest for 2 months while you carry on holding all the risk. The cashback hunters don't bother me because I avoid the loans they pile into - so they don't affect my personal liquidity directly. However there may be an indirect effect on general platform liquidity because people tend to want what they can't get. Log into a barren SM and people are F5ing and sitting up half the night trying to grab something. When there's lots up for grabs on the SM it doesn't seem such an appealing thing to want. Scarcity creates demand and adds value, in a sense. I'm glad COL is saving on its interest bill thanks to these cashback hunters but in my opinion the way forward is higher rates not cashback. If a loan can't fill with a top rate then it's a duff loan. If cashback is used to enable duff loans to be funded, this must increase platform risk in the longer term as duffers are more likely to default. Without the CB loans, there is not likely to be a SM as CO is not likely to be in business, so a necessary evil for you Higher rates tend to be high risk and the worst return in default. Liquid as long as nothing goes wrong whilst your holding them
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