jonno
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nil satis nisi optimum
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Post by jonno on Jun 2, 2020 12:05:38 GMT
Why is a p2p ISA crazy? If you expect to make a profit across all your P2P investments, you will save 20-45% tax on the net profits using an ISA. There are risk reward balanced to calculate. P2p maximum reward is 12%, but in reality more in the 7% area. But you could lose the lot. So +7 or -25% (my estimate of average hair cuts). In an ISA there is no tax benefit from the -25%. So I prefer to hold the risky p2p deals outside ISA. I keep lower risk higher return S+S and funds in a ISA where capital losses are far less likely. I understand your surprise from your webname but I don't think your risk analysis makes sense. As for cash ISAs, see previous answer I agree to an extent re IFISA's but not totally. I think there can be room for them if you are a 40% tax payer and you choose your platform(s) carefully. I opened one with Proplend a couple of years ago and it is performing well for me. I only invest in Tranche A (LTV max 50%) and only invest the minimum in each loan (£1000). So far I've had no capital losses and saved around £2k in tax.
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macq
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Post by macq on Jun 2, 2020 12:08:47 GMT
not saying i don't take that approach but i have never assumed its guaranteed as you suggest - so guess some people like cash/p2p ISA's as they can build up now out of the taxman's reach while not worrying what changes may happen with savings allowance etc in the future? I would agree if the term build up made sense but with inflation at 1.5% and interest at 1%..... while i agree rates on a cash ISA can be worse then a normal account(and inflation etc) the term build up will make sense to some.Not everybody will want to invest as opposed to save so if they only want a cash account they may prefer an ISA rather then wondering what a future govt.(or even this One) will do to taxable accounts going forward
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IFISAcava
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Post by IFISAcava on Jun 2, 2020 12:24:06 GMT
Why is a p2p ISA crazy? If you expect to make a profit across all your P2P investments, you will save 20-45% tax on the net profits using an ISA. There are risk reward balanced to calculate. P2p maximum reward is 12%, but in reality more in the 7% area. But you could lose the lot. So +7 or -25% (my estimate of average hair cuts). In an ISA there is no tax benefit from the -25%. So I prefer to hold the risky p2p deals outside ISA. I keep lower risk higher return S+S and funds in a ISA where capital losses are far less likely. I understand your surprise from your webname but I don't think your risk analysis makes sense. As for cash ISAs, see previous answer If you estimate a range of return -25 to +7, I assume you are suggesting you expect a higher chance of making a loss than a profit. If you expect a loss, then I would not invest in P2P regardless of inside or outside of an ISA. if on the other hand you have an expectation of making a profit, there is clearly a tax benefit from using an ISA. As I expect a profit overall from P2P, I invest in P2P, and use ISAs to save tax on the expected profits. As for riskier loans - again, why invest if you expect an overall loss? Sure, there is a higher risk of a loss, but also a higher risk of more interest (i.e. more tax savings in an ISA). And also, it is the overall balance of P2P interest across investments that matters - if that balance is positive, you will have saved money in an ISA. No offence, but I don't think your risk analysis makes sense as it sounds like you invest expecting an overall loss (which is the only scenario where it is tax advanatgeous to do so outside of an ISA).
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Post by Ace on Jun 2, 2020 12:42:04 GMT
Why is a p2p ISA crazy? If you expect to make a profit across all your P2P investments, you will save 20-45% tax on the net profits using an ISA. There are risk reward balanced to calculate. P2p maximum reward is 12%, but in reality more in the 7% area. But you could lose the lot. So +7 or -25% (my estimate of average hair cuts). In an ISA there is no tax benefit from the -25%. So I prefer to hold the risky p2p deals outside ISA. I keep lower risk higher return S+S and funds in a ISA where capital losses are far less likely. I understand your surprise from your webname but I don't think your risk analysis makes sense. As for cash ISAs, see previous answer I agree that there is a balance to calculate, but 12% is not the max reward in p2p. My XIRR on ABLrate is currently above this, albeit not by much. My single completed loan on AxiaFunder so far returned a 93.75% profit. I'm also expecting some loans to return above 12% on other platforms.
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jonno
Member of DD Central
nil satis nisi optimum
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Post by jonno on Jun 2, 2020 12:46:45 GMT
There are risk reward balanced to calculate. P2p maximum reward is 12%, but in reality more in the 7% area. But you could lose the lot. So +7 or -25% (my estimate of average hair cuts). In an ISA there is no tax benefit from the -25%. So I prefer to hold the risky p2p deals outside ISA. I keep lower risk higher return S+S and funds in a ISA where capital losses are far less likely. I understand your surprise from your webname but I don't think your risk analysis makes sense. As for cash ISAs, see previous answer If you estimate a range of return -25 to +7, I assume you are suggesting you expect a higher chance of making a loss than a profit. If you expect a loss, then I would not invest in P2P regardless of inside or outside of an ISA. if on the other hand you have an expectation of making a profit, there is clearly a tax benefit from using an ISA. As I expect a profit overall from P2P, I invest in P2P, and use ISAs to save tax on the expected profits. As for riskier loans - again, why invest if you expect an overall loss? Sure, there is a higher risk of a loss, but also a higher risk of more interest (i.e. more tax savings in an ISA). And also, it is the overall balance of P2P interest across investments that matters - if that balance is positive, you will have saved money in an ISA. No offence, but I don't think your risk analysis makes sense as it sounds like you invest expecting an overall loss (which is the only scenario where it is tax advanatgeous to do so outside of an ISA). I think your in danger of equating a Risk Management Strategy with an "overall loss expectation". A sound RMS not only REDUCES the likelihood of a loss but seeks to mitigate the collateral damage if it should happen. My investment approach with Proplend would be different to some extent outside of an IFISA in that I would be far more likely to invest in the higher risk/return loans, balancing the tax liability, and the higher likelihood of default against the higher return and the tax relief. BUT, at no point am I investing expecting to make a loss.
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IFISAcava
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Post by IFISAcava on Jun 2, 2020 14:01:01 GMT
If you estimate a range of return -25 to +7, I assume you are suggesting you expect a higher chance of making a loss than a profit. If you expect a loss, then I would not invest in P2P regardless of inside or outside of an ISA. if on the other hand you have an expectation of making a profit, there is clearly a tax benefit from using an ISA. As I expect a profit overall from P2P, I invest in P2P, and use ISAs to save tax on the expected profits. As for riskier loans - again, why invest if you expect an overall loss? Sure, there is a higher risk of a loss, but also a higher risk of more interest (i.e. more tax savings in an ISA). And also, it is the overall balance of P2P interest across investments that matters - if that balance is positive, you will have saved money in an ISA. No offence, but I don't think your risk analysis makes sense as it sounds like you invest expecting an overall loss (which is the only scenario where it is tax advanatgeous to do so outside of an ISA). I think your in danger of equating a Risk Management Strategy with an "overall loss expectation". A sound RMS not only REDUCES the likelihood of a loss but seeks to mitigate the collateral damage if it should happen. My investment approach with Proplend would be different to some extent outside of an IFISA in that I would be far more likely to invest in the higher risk/return loans, balancing the tax liability, and the higher likelihood of default against the higher return and the tax relief. BUT, at no point am I investing expecting to make a loss.which is the main point I am making. Once you are at the point where you don't expect to make a loss, using an ISA mitigates the much more likely risk of a tax loss at the expense of not mitigating the much less likely risk of making an overall net capital loss across all your P2P.
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