Post by pip on Apr 23, 2020 9:08:39 GMT
Tax return question/call for opinions
I suspect like many I have made a profit on P2P lending for the tax year ending the 05/04/20. However I now am in a position where many of my loans on many platforms are either overdue, I have received a note to say that they are on a payment holiday, or I have already received notice that the loan will default.
This is not a good position to be in from a tax perspective. I will be paying tax on my earnings from last year, and almost certainly make considerably more losses this year than my profits last year.
HMRC's guidance on this topic is:
assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/597959/Income_tax_relief_for_irrecoverable_peer_to_peer_loans_FINAL_GUIDANCE__2_.pdf
This makes it clear that if I made a loss in this tax year from P2P lending I have the option of offsetting this against future P2P income. However at present I don't know if I will invest in P2P going forward and definitely am not sure if my future P2P income will come close to my expected losses for this year. Therefore, while useful this doesn't really help me.
What I would really like is to offset this years losses against last years income. On the current rules this is not possible. However....the rules do allow investors to have some judgement over whether a loan should have been deemed as irrecoverable in the previous tax year:
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.
This is a pretty complex statement. The first question is what on earth does 'if the platform does not take this action mean'?. Does it mean a) the platform has not defaulted a loan which the lender thinks is not recoverable or b) the platform does not consider whether loans should be defaulted. Not sure but I will opt for (a).
The second question is what is a reasonable threshold for an investor to meet the 'no
reasonable prospect of the recovery' threshold, especially in the current climate. What is made clear is that it is not just late payment, but is it a) liquidation, b) is it the business is closed, c) it it a statement from the business to say they wont be able to make payments for the foreseeable future? I am not sure there is a definite answer to this. To me I think the following features in the current climate show that the loan has 'no reasonable prospect of recovery'....the business is not able top operate and is not making repayments. Maybe this is too lax but it seems reasonable to me that if a business is not able to operate the loan has no reasonable prospect of recovery.
So what is the conclusion. My first conclusion is that this is a subjective and tricky area of tax, and it is pretty ridiculous that retail investors are in the position of having to wade through this minefield. I definitely do not make any advice and everybody should make their own call. But what do people think of this idea....Offsetting any P2P loan profits from PY against any loans which at the date of making the tax return meet ALL of the following criteria: have not made any repayments (and have missed a payment) since the 05/04/20, have indicated that they are unable to make repayments and are not currently able to trade. Of course in future tax years any recoveries from these and other loans will have to be added back as profits. But I suspect that the losses on this, and probably other loans, will exceed this.
Again this is a question / a call for opinions and definitely not advice. What are others thoughts?
I suspect like many I have made a profit on P2P lending for the tax year ending the 05/04/20. However I now am in a position where many of my loans on many platforms are either overdue, I have received a note to say that they are on a payment holiday, or I have already received notice that the loan will default.
This is not a good position to be in from a tax perspective. I will be paying tax on my earnings from last year, and almost certainly make considerably more losses this year than my profits last year.
HMRC's guidance on this topic is:
assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/597959/Income_tax_relief_for_irrecoverable_peer_to_peer_loans_FINAL_GUIDANCE__2_.pdf
This makes it clear that if I made a loss in this tax year from P2P lending I have the option of offsetting this against future P2P income. However at present I don't know if I will invest in P2P going forward and definitely am not sure if my future P2P income will come close to my expected losses for this year. Therefore, while useful this doesn't really help me.
What I would really like is to offset this years losses against last years income. On the current rules this is not possible. However....the rules do allow investors to have some judgement over whether a loan should have been deemed as irrecoverable in the previous tax year:
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.
This is a pretty complex statement. The first question is what on earth does 'if the platform does not take this action mean'?. Does it mean a) the platform has not defaulted a loan which the lender thinks is not recoverable or b) the platform does not consider whether loans should be defaulted. Not sure but I will opt for (a).
The second question is what is a reasonable threshold for an investor to meet the 'no
reasonable prospect of the recovery' threshold, especially in the current climate. What is made clear is that it is not just late payment, but is it a) liquidation, b) is it the business is closed, c) it it a statement from the business to say they wont be able to make payments for the foreseeable future? I am not sure there is a definite answer to this. To me I think the following features in the current climate show that the loan has 'no reasonable prospect of recovery'....the business is not able top operate and is not making repayments. Maybe this is too lax but it seems reasonable to me that if a business is not able to operate the loan has no reasonable prospect of recovery.
So what is the conclusion. My first conclusion is that this is a subjective and tricky area of tax, and it is pretty ridiculous that retail investors are in the position of having to wade through this minefield. I definitely do not make any advice and everybody should make their own call. But what do people think of this idea....Offsetting any P2P loan profits from PY against any loans which at the date of making the tax return meet ALL of the following criteria: have not made any repayments (and have missed a payment) since the 05/04/20, have indicated that they are unable to make repayments and are not currently able to trade. Of course in future tax years any recoveries from these and other loans will have to be added back as profits. But I suspect that the losses on this, and probably other loans, will exceed this.
Again this is a question / a call for opinions and definitely not advice. What are others thoughts?