Post by sl125 on Jan 8, 2015 11:47:45 GMT
Jan 8, 2015 11:27:21 GMT sl75 said:
I don't really see that HMRC would gain anything overall by applying tax to gains and losses made by buying and selling loan parts at a level other than par.For every party who makes a gain on the secondary market, there is a counterparty who (ignoring the FC fee) makes an equal and opposite loss... if the gains are taxable, then obviously the losses would be offset against that taxable gain, and HMRC would be effectively back in the same position they started - at least if both parties pay the same tax rate. In fact they'd perhaps be worse off, as there would then be an arguable justification for offsetting the sale fee against tax too.
It would indeed seem a lot fairer to move to a tax system where the "overall profit within the FC account for the year" was the amount taxed - so that buying loan parts at a premium, selling loan parts at a discount, defaults, and all FC fees ended up offset against income for tax purposes. However, to the best of my knowledge and understanding that is NOT the tax system we presently have. Maybe for 2015/16 tax year?
Unfortunately, that's not how tax works.
Take an overly simplified aspect of corporation tax as an example:
Suppose company A purchases £100 of goods from Company B.
Company A's profits are reduced by the £100 expense they incurred purchasing goods from Company B.
But Company B's profits are increased by £100 for the sales they made to Company A.
Therefore, the corporation tax of Company A has been reduced by £20 (20% of £100), whilst the corporation tax of Company B has been increased by £20. Net gain/loss to HMRC = £0.... but the important point is that each company has paid their appropriate share of the tax based on their own profits.
All taxation works on a similar basis. Tax isn't just about the net funds flowing into the Treasury - it is about ensuring the tax burden falls proportionally on those who earn more / own more, etc.