IFISAcava
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Post by IFISAcava on Feb 14, 2018 1:47:19 GMT
I will need to take advice on this. As I understood matters it was necessary for the platform to declare a loan default and show it on the individual's platform issued fiscal year statement before any write-off could be effected on the tax return. I'm not convinced HMRC will simply accept a default declared by an individual without platform documentation. But I'll take the necessary advice as possibly things have changed. HMRC rules allow individuals to claim tax relief for losses in two circumstances a loan has become irrecoverable as determined by the platform & declared as such by them a loan can be treated as irrecoverable if it has entered legal recovery procedures eg. admin or receivership. This can be self determined by the lender. www.gov.uk/government/publications/income-tax-relief-for-irrecoverable-peer-to-peer-loans-final-guidanceI am not sure that is quite right - see the HMRC text and my bold When does a peer to peer loan become irrecoverable A peer to peer loan may be accepted as having become irrecoverable when there is no reasonable prospect of the recovery of the loan. When assessing recoverability, the funds available and potentially available to the borrower must be considered. A claim therefore cannot be established simply because the borrower has insufficient liquidity on the date the loan had been called in. Whether a loan has become irrecoverable should be judged on a case by case basis, however as the loan will be managed by a platform, the platform would usually be in a position to determine when a loan has become irrecoverable. The platform would then inform the lender that the loan had become irrecoverable. If the platform does not undertake this action, then the lender may still determine that the loan has become irrecoverable. However it will be the responsibility of the lender to show that there is no reasonable prospect of the recovery of the loan and it is NOT simply a case of late payment. When is a peer to peer loan treated as irrecoverable? Under the legislation for income tax relief for irrecoverable peer to peer loans in certain circumstances a loan may be treated as irrecoverable for the purposes of the relief even if there may be a prospect that the lender could recover some of the amount outstanding. This is the case for the following situations: Loans with security When loans are made against security, a loan may be treated as becoming irrecoverable as if the security did not exist. Loans where legal recovery action is taken When the borrower has entered legal recovery procedures such as liquidation, administration, receivership or bankruptcy the loan may be treated as becoming irrecoverable as if such action was not available.
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IFISAcava
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Post by IFISAcava on Feb 14, 2018 2:01:53 GMT
<snip> It doesn't stop anyone from writing it off on their tax return if they wish I understand. <snip> I will need to take advice on this. As I understood matters it was necessary for the platform to declare a loan default and show it on the individual's platform issued fiscal year statement before any write-off could be effected on the tax return. I'm not convinced HMRC will simply accept a default declared by an individual without platform documentation. But I'll take the necessary advice as possibly things have changed. If you can make a case it is not likely to be recovered, you can write it off, and then pay tax in future years if and when anything is recovered. Advice may be needed on how strong a case is the HMRC would want, if they ever ask, but I think it is not the case that you have to have the platform declare a default. I also think that common sense usually prevails here - you will be paying tax on what you receive if the debt turns out not to be bad, so it isn't much of big deal as long as you aren't writing things off after a few weeks non-payment, or doing it as part of some sort of dodgy plan.
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bugs4me
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Post by bugs4me on Feb 14, 2018 10:39:29 GMT
Thanks for the feedback on this folks and it’s apparently not as straightforward as stuartassetzcapital would have us believe. According to my accountant, you need to be in a position to fully justify your actions and should be supported by documentation from the platform. The current AC tax statement already lists 'Loans in Recoveries’ which are, in their opinion, candidates to offset against personal tax. It follows they have a formula for deciding whether an outstanding loan should be included in this calculation or not. I doubt if they would ever disclose this in-house calculation. Unfortunately they do not detail these loans. Now possibly they have decided the loan is in default but prefer to classify it as in recovery for PR purposes even though the chances of further financial recoveries may be close to zero. To self determine whether a loan should be considered ‘in default’, whether actual or technical is a minefield and not worth it. It’s a grin and bear it in my case. None of the above should be considered advice as I am not qualified to give it. |
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Post by stuartassetzcapital on Feb 14, 2018 11:12:00 GMT
Thanks for the feedback on this folks and it’s apparently not as straightforward as stuartassetzcapital would have us believe. According to my accountant, you need to be in a position to fully justify your actions and should be supported by documentation from the platform. The current AC tax statement already lists 'Loans in Recoveries’ which are, in their opinion, candidates to offset against personal tax. It follows they have a formula for deciding whether an outstanding loan should be included in this calculation or not. I doubt if they would ever disclose this in-house calculation. Unfortunately they do not detail these loans. Now possibly they have decided the loan is in default but prefer to classify it as in recovery for PR purposes even though the chances of further financial recoveries may be close to zero. To self determine whether a loan should be considered ‘in default’, whether actual or technical is a minefield and not worth it. It’s a grin and bear it in my case. None of the above should be considered advice as I am not qualified to give it. Hi, thanks for this feedback and we will review if we can make this easier for people. There isn't any 'PR' purpose in the tax report so we just need to make sure it helps people make their own decisions on what is to be deducted as losses for the year and it sounds like we need more information on that report to help that be achieved.
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Post by wayne12 on Feb 14, 2018 11:21:53 GMT
Gotta admit I was pleasantly surprised to see I received several payments from the PF. I was led to believe by certain people that AC were kinda tight fisted about their PF. Guess they were wrong
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bugs4me
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Post by bugs4me on Feb 14, 2018 11:48:38 GMT
Thanks for the feedback on this folks and it’s apparently not as straightforward as stuartassetzcapital would have us believe. According to my accountant, you need to be in a position to fully justify your actions and should be supported by documentation from the platform. The current AC tax statement already lists 'Loans in Recoveries’ which are, in their opinion, candidates to offset against personal tax. It follows they have a formula for deciding whether an outstanding loan should be included in this calculation or not. I doubt if they would ever disclose this in-house calculation. Unfortunately they do not detail these loans. Now possibly they have decided the loan is in default but prefer to classify it as in recovery for PR purposes even though the chances of further financial recoveries may be close to zero. To self determine whether a loan should be considered ‘in default’, whether actual or technical is a minefield and not worth it. It’s a grin and bear it in my case. None of the above should be considered advice as I am not qualified to give it. Hi, thanks for this feedback and we will review if we can make this easier for people. There isn't any 'PR' purpose in the tax report so we just need to make sure it helps people make their own decisions on what is to be deducted as losses for the year and it sounds like we need more information on that report to help that be achieved. It's the loan details that AC have already taken into the 'Loans in Recoveries' which are required. Then it's entirely up to the individual to go searching for others as to whether to decide to 'self default'. Having said that, whether it's all worthwhile will of course be a debatable subject IMO.
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Feb 14, 2018 12:33:10 GMT
From what I can see there isn't any magic in-house formula it's merely the same criteria as specified by HMRC; the loan(s) is in legal recovery. In most cases this is documented by public sources ie filings at CH re appointments of admin/LPA a over the security in the charge or in the Gazette.
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Post by bobthebuilder on Feb 14, 2018 17:57:50 GMT
However, the gap I can see is normal interest whilst in default. If loan X defaults and takes a year to either recover capital or have the PF close the gap with capital, then whilst the capital has been made whole, I’m missing 7% of X (if GEA). Do I read the FAQ correctly stuartassetzcapital and think that this “normal interest whilst in default” is not covered by the PF and won’t ever be paid out, unless the asset recovery is sufficient to cover it? Yes you have read this correctly I believe. Whilst a loan is in default then interest accrues and if recovered alongside and on top of the full capital being recovered then it would be paid at that time but the PF will not pay out interest during that recovery process as it was designed to handle late / missed interest on pre-defaulted loans as per the FAQs, and not to make payments of interest during a recovery process. Capital payments are prioritised during the recovery process and making monthly interest payments during recovery/ post default would be putting interest ahead of capital. Bearing in mind that we are a secured lender and have a loan book that is under 60% Loan to Value we have expectations (based upon our loan valuations and other credit approval analysis) when extending loans that recoveries would generally materially support capital recovery as well as late interest and fees for the recovery process. Clearly life isn't always that perfect and in some cases that full extent of recovery may not be possible. I hope this helps. If the PF isn't going to cover any interest accrued after the default date, wouldn't it be reasonable for investors in the PF-protected accounts to accrue interest thereafter at the default rate instead of 7% (or 5.5%/6.25%)? After all, their post-default interest is as much at risk as that of MLIA investors.
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IFISAcava
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Post by IFISAcava on Feb 14, 2018 18:18:05 GMT
Yes you have read this correctly I believe. Whilst a loan is in default then interest accrues and if recovered alongside and on top of the full capital being recovered then it would be paid at that time but the PF will not pay out interest during that recovery process as it was designed to handle late / missed interest on pre-defaulted loans as per the FAQs, and not to make payments of interest during a recovery process. Capital payments are prioritised during the recovery process and making monthly interest payments during recovery/ post default would be putting interest ahead of capital. Bearing in mind that we are a secured lender and have a loan book that is under 60% Loan to Value we have expectations (based upon our loan valuations and other credit approval analysis) when extending loans that recoveries would generally materially support capital recovery as well as late interest and fees for the recovery process. Clearly life isn't always that perfect and in some cases that full extent of recovery may not be possible. I hope this helps. If the PF isn't going to cover any interest accrued after the default date, wouldn't it be reasonable for investors in the PF-protected accounts to accrue interest thereafter at the default rate instead of 7% (or 5.5%/6.25%)? After all, their post-default interest is as much at risk as that of MLIA investors. Very good point. Although since there is less prospect of capital loss, the overall risk post default isn't the same. One might say they should have default interest after the MLIA get their share first. Or alternatively that default interest accrues (as it surely does to the borrower on those loan parts) but goes back into the PF, just as any excess interest does in non-default situations.
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Esmeralda
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Post by Esmeralda on Feb 15, 2018 16:35:05 GMT
Am I missing something? Loan #437 hasn't paid out PF interest whereas the other 3 I** turbine loans have. I've rung twice to ask why/when it would be paid out and I was told today that it's because #437 is in default. I said that I wasn't aware of that and I was told that the email sent to investors in that loan telling us that it's now a defaulted loan was sent on 2nd Feb. I've looked at the email but I can't for the life of me see the sentence where it says it's in default - just that it, like the other three I** turbine loans, has been suspended. Can anybody point me in the right direction? I was under the impression that the loans were just suspended, not in default. Why is #437 defaulted and the other three aren't or are AC telling me porkies?
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Post by mike1963 on Feb 15, 2018 16:46:48 GMT
I raised the same issue with AC and was told...
”When a loan is suspended from trading, the activity tab will tell you if the reason for suspension is not due to default. For example if a lender vote is taking place or if it’s been suspended whilst a repayment is being added. Other than that, when a loan is suspended from trading it has defaulted, ie missed payments or broken the terms and conditions of the loan.”..
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Post by mike1963 on Feb 15, 2018 17:05:44 GMT
Re loan #437...as far as it being on your tax statement....
”We have reserved our rights and we are working with the borrower and their wider team. At this stage, we do not propose to charge default interest or look to enforce the security held whilst we continue our work to seek to minimise lender risk. All options will remain open during this investigation period and beyond.”
At this point the loan is in default but is not in the recovery stage, therefore doesn’t show in the “Loans in Recoveries” section of the tax statement.”
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Post by vaelin on Feb 15, 2018 17:45:17 GMT
Interesting to see how this works, I may start adding a bit more to my AC holdings..I'd wait until the allocation algorithms are sorted. QAA/30-day/MLIA are the ones to use for now IMHO. I've just discovered this the hard way. An initial investment in the GBBA2 was highly diversified amongst 130 loans. I then made another investment that was 50% larger than my initial investment, and 66% of that went to one loan. It was not a small amount.
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IFISAcava
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Post by IFISAcava on Feb 15, 2018 17:49:51 GMT
I'd wait until the allocation algorithms are sorted. QAA/30-day/MLIA are the ones to use for now IMHO. I've just discovered this the hard way. An initial investment in the GBBA2 was highly diversified amongst 130 loans. I then made another investment that was 50% larger than my initial investment, and 66% of that went to one loan. It was not a small amount. Sell out and start again!
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cb25
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Post by cb25 on Feb 15, 2018 17:52:07 GMT
I'd wait until the allocation algorithms are sorted. QAA/30-day/MLIA are the ones to use for now IMHO. I've just discovered this the hard way. An initial investment in the GBBA2 was highly diversified amongst 130 loans. I then made another investment that was 50% larger than my initial investment, and 66% of that went to one loan. It was not a small amount. Re the 66% - did it go into loan 441, as I see it has £930K available for investment in GBBA2 ?
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