Selling your main account loans into your ISA

It's easier to understand if you think of the extreme case.

Let's say you buy your non-ISA loan into your ISA at 99% discount (not technically possible, but just for illustrative purposes).

You end up using little cash in the purchase within your ISA, so your ISA account receives only a little dent.  Come end-of-loan, assuming it's repaid, you get the full 100% + 6% (say) back.  That means you have *much* more cash squirrelled away within your ISA, with which you can go on to make more tax-free returns.

The 1% discount is just a much less extreme version of that - it means you have a small bump in the amount if cash within the tax-free wrapper.

The 1% above-par sale sucks money out of your ISA back into non-ISA.

Being only 1% at most it does not make that much difference.  But you can see why FS had to introduce the +/-1% limit (it used to be much larger, IRRC).

So selling to yourself does not make-or-lose you money overall (fairly obviously) - it just adjusts the balance of what is in the ISA wrapper versus what is not - but in the long term could make a difference if you save some tax by virtue of growing the ISA more quickly.

TBH, I've always taken the view that it's not worth it and just to be able to keep myself on the straigh-and-narrow with HMRC if I do "sell to myself", I do so at 0%.

Surely if you want to sell loans from your non-ISA account and buy them with your ISA account you first have to put them on the SM.

If you put them on the SM at -1% is there not a danger that someone else (maybe me ) will snap them up before your ISA can buy them?

IMHO this is a Bird in hand / Bird in bush situation.

When you sell on the secondary market what you receive from the sale is capital + accrued interest.  The accrued interest is tax free.
Sell at a premium and the return to you now is higher but when the loan repays in your ISA the return will be lower.
Sell at a discount and the return to you now is lower but the return to your ISA will be higher. Obviously tax free.

So the question you need to ask yourself is do you want the tax advantage now or do you want to build your ISA faster.

The default position should be that you sell at market rate at the time of the transaction to avoid any embarrassing questions from HMRC about gaming the tax rules.

From FS's own Secondary Market Explained page:

CAPITAL GAINS TAX

Secondary market transactions are considered to be purchases / sales of the original loan which is a “simple debt”. As such they are not usually liable for capital gains tax. In the event of a capital loss due to a default the loss is calculated against the original capital value, not including any premium / discount paid through the secondary market. The current capital gains annual exempt allowance for an individual is £11,100.

NOTE: If you buy and then resell the same loan part on the secondary market it may no longer be considered as a “simple debt” and any gains may be liable for capital gains tax.

No. Does that not raise a concern for you going forwards? Outside the usa you can claim a portion of bad debts against taxable income from p2p when working out your liability. You lose this inside the isa.