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Post by Deleted on Jan 18, 2015 12:47:10 GMT
Hi,
I understand that all the new loans are now taken by underwriters or single private investors.
If they were happy to take the loan to start with (along with the interest rate paid), what's the motivation to release some of it progressively to the second market? Why wouldn't they just keep it?
Thanks!
S.
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agent69
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Post by agent69 on Jan 18, 2015 14:45:31 GMT
Hi, I understand that all the new loans are now taken by underwriters or single private investors. If they were happy to take the loan to start with (along with the interest rate paid), what's the motivation to release some of it progressively to the second market? Why wouldn't they just keep it? Thanks! S. The rules say they have to release a given percentage (although the precise figures aren't clear)
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Post by pepperpot on Jan 18, 2015 15:25:26 GMT
Also, the motivation comes from receiving a fee for underwriting the loan in the first place. So they would want to release their funds to take part in new loans and get a new fee.
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pikestaff
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Post by pikestaff on Jan 18, 2015 16:33:02 GMT
Quite so. Plus underwriters will typically be taking very large exposures that that may not be happy to hold for the long term because of the concentration of risk.
I don't do underwriting on AC (I'm not rich enough for that) but quite a few TC loans offer cashback for large bids. If the cashback is big enough and I like the loan, I may bid over my normal limit to qualify for the cashback, then sell some later.
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sl75
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Post by sl75 on Jan 19, 2015 10:02:30 GMT
I don't do underwriting on AC (I'm not rich enough for that) but quite a few TC loans offer cashback for large bids. If the cashback is big enough and I like the loan, I may bid over my normal limit to qualify for the cashback, then sell some later. Presumably this would be precisely the behaviour that the cashback offer would be intended to encourage... ... however, this would generate a strong anticipation that units will later be made available on excellent terms on the secondary market (by users who benefitted from that cashback offer, and wish to liquidate so they can benefit from the next one). The experience at AC when secondary availability became an established pattern was that many users simply didn't bother with the primary auction (especially if they know they won't be eligible for the preferential terms), waiting for the loan to become available on the secondary market without having the uncertainty and extended delays of the drawdown process. It thus seems unclear whether the cashback would generate more overall bidding, and it's plausible it could even result in LESS - at least once it becomes an established pattern (so that the secondary logic can take hold so that "nobody" bothers bidding unless they can get the very best rate of cashback).
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pikestaff
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Post by pikestaff on Jan 19, 2015 11:03:06 GMT
I don't do underwriting on AC (I'm not rich enough for that) but quite a few TC loans offer cashback for large bids. If the cashback is big enough and I like the loan, I may bid over my normal limit to qualify for the cashback, then sell some later. Presumably this would be precisely the behaviour that the cashback offer would be intended to encourage... ... however, this would generate a strong anticipation that units will later be made available on excellent terms on the secondary market (by users who benefitted from that cashback offer, and wish to liquidate so they can benefit from the next one). The experience at AC when secondary availability became an established pattern was that many users simply didn't bother with the primary auction (especially if they know they won't be eligible for the preferential terms), waiting for the loan to become available on the secondary market without having the uncertainty and extended delays of the drawdown process. It thus seems unclear whether the cashback would generate more overall bidding, and it's plausible it could even result in LESS - at least once it becomes an established pattern (so that the secondary logic can take hold so that "nobody" bothers bidding unless they can get the very best rate of cashback). You are right in principle but there's not much evidence of this in practice. I attribute this to a combination of TC's high fees to sellers and the distinctly awkward UI of the secondary market. It's not really a market for flippers. Plus quite a few sellers seem to be over-ambitious on price so there are fewer bargains that you might expect. I hope to re-sell 6-12 months down the road at par and don't expect to have gained much from the activity other than switching a portion of my return from taxable interest (the accrued interest passing to my buyers) to non-taxable cashback. I'm content to do this if it helps the loans that I like get away.
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mikes1531
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Post by mikes1531 on Jan 19, 2015 12:57:38 GMT
I hope to re-sell 6-12 months down the road at par and don't expect to have gained much from the activity other than switching a portion of my return from taxable interest (the accrued interest passing to my buyers) to non-taxable cashback. : The answer to the question of whether or not cashback is taxable is unclear to me. You seem convinced it is non-taxable. What are you basing that position on? And what do others think? Have I missed a definitive opinion/ruling?
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pikestaff
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Post by pikestaff on Jan 19, 2015 15:00:23 GMT
mikes1531I've nothing much to add to what I've said before p2pindependentforum.com/post/32356/thread. For ease of reference it is reproduced below, with some added explanation: There are lots of different types of cashback in p2p, some of which are taxable but others may not be. My personal view is:
- If it comes from the borrower and is paid to all lenders on the same terms, it's part of the return on the loan and is therefore taxable as income.
- If it comes from the borrower but is an incentive paid only to some lenders (eg early bird discount), it's a reduction in the cost of the loan. This is not taxable as income but would reduce any capital loss in the event of a default.
- If it comes from the platform it's probably not taxable at all although this will depend on the terms. If it's tied to a specific loan it may be regarded as a reduction in the cost of the loan and treated as per the 2nd bullet above.
See also here p2pindependentforum.com/post/7261/threadIt is my opinion of the personal tax position, based on reading HMRC's website and FC's guidance. It assumes that the loan parts are "simple debts", so that capital gains are not taxable and the special rules dealing with the taxation of discount on securities do not apply. FC are explicit that their loan parts are simple debts and I agree. The position is less clear (but defensible) on TC. Cashbacks on TC come from the borrower and (with one minor exception) have been paid to selected lenders only. As such they would come under the second bullet.
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duck
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Post by duck on Jan 19, 2015 19:10:57 GMT
I hope to re-sell 6-12 months down the road at par and don't expect to have gained much from the activity other than switching a portion of my return from taxable interest (the accrued interest passing to my buyers) to non-taxable cashback. : The answer to the question of whether or not cashback is taxable is unclear to me. You seem convinced it is non-taxable. What are you basing that position on? And what do others think? Have I missed a definitive opinion/ruling? Not a definitive answer by any means but my accountants have not included cashback as taxable for the past two years ....
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gon
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Post by gon on Jan 20, 2015 13:41:38 GMT
We understood that Andrew Holgate was meeting with HMRC prior to Christmas to get a definitive answer as to what items i.e. cashback would be classed as taxable. However we are not aware of the outcome of that meeting. If anyone is aware we would be grateful to hear please.
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