james
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Post by james on Sept 3, 2015 16:22:00 GMT
It's unlikely to qualify as a trade, however profitable it might be.
It is not free of tax consequences for the seller because it is a capital gain liable to capital gains tax.
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arbster
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Post by arbster on Sept 3, 2015 16:38:16 GMT
It's unlikely to qualify as a trade, however profitable it might be. It is not free of tax consequences for the seller because it is a capital gain liable to capital gains tax. Interesting. I note that my Funding Circle tax statement records accrued interest associated with sold loan parts as interest, right there alongside interest actually paid by borrowers. This would seem to be at odds with what both you and meledor are saying should be the case. Or am I misunderstanding?
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Post by meledor on Sept 3, 2015 19:07:58 GMT
It's unlikely to qualify as a trade, however profitable it might be. It is not free of tax consequences for the seller because it is a capital gain liable to capital gains tax. Interesting. I note that my Funding Circle tax statement records accrued interest associated with sold loan parts as interest, right there alongside interest actually paid by borrowers. This would seem to be at odds with what both you and meledor are saying should be the case. Or am I misunderstanding?
I am not familiar with Funding Circle so I cannot comment. But if the tax statement is as you describe then it does not accord with the information in the HMRC links I provided. Maybe you should take it up with FC?
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james
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Post by james on Sept 3, 2015 19:09:43 GMT
I note that my Funding Circle tax statement records accrued interest associated with sold loan parts as interest, right there alongside interest actually paid by borrowers. This would seem to be at odds with what both you and meledor are saying should be the case. Or am I misunderstanding? If the accrued interest money comes from the borrower at the time the borrower makes the payment the FC way seems fine and correct. If not, it would be interesting to know how FC explain doing it that way, that is, the logic used with HMRC.
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blender
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Post by blender on Sept 3, 2015 22:32:48 GMT
I note that my Funding Circle tax statement records accrued interest associated with sold loan parts as interest, right there alongside interest actually paid by borrowers. This would seem to be at odds with what both you and meledor are saying should be the case. Or am I misunderstanding? If the accrued interest money comes from the borrower at the time the borrower makes the payment the FC way seems fine and correct. If not, it would be interesting to know how FC explain doing it that way, that is, the logic used with HMRC. With FC the amount of accrued interest is paid by the buyer to the seller at the time of purchase and the buyer then receives the full monthly interest from the borrower when the next monthly repayment is made (if it is made). Buyer and seller are credited with taxable interest pro-rata to their part of the month held. If the full tax rules were implemented then the seller would have a tax free payment but the buyer be liable for the whole month's tax on interest - even if the loan part was bought the day before payment was due. Also the FC fee is not split but falls on the lender holding at the time of payment. That would not be a fair system, and would result in many sales to unsuspecting Autobidders the day before repayment. It would be interesting to know how this was squared with HMRC.
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stevio
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Post by stevio on Sept 10, 2015 11:11:06 GMT
Can I just check I have this right for the SM:
- if I sell a loan earning 10% at 100% I have lost nothing in the interest
- If I then buy a loan at 14% at 102%, effectively I have lost a 2% of the 14%
Although I presume that assumes 12 months left on the loan? If there is longer/shorter, how do I work this out!!!!!!!!!!!
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SteveT
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Post by SteveT on Sept 10, 2015 11:13:32 GMT
Can I just check I have this right for the SM: - if I sell a loan earning 10% at 100% I have lost nothing in the interest - If I then buy a loan at 14% at 102%, effectively I have lost a 2% of the 14% Although I presume that assumes 12 months left on the loan? If there is longer/shorter, how do I work this out!!!!!!!!!!! The AER is calculated and shown on each part listed. If you buy at a better AER than you sell at, you are ahead (in theory, all other things being equal)
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stevio
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Post by stevio on Sept 10, 2015 11:22:40 GMT
So the AER does all the work for you - takes into account time left on loan and rate Albrate is offering?
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SteveT
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Post by SteveT on Sept 10, 2015 11:31:26 GMT
So the AER does all the work for you - takes into account time left on loan and rate Albrate is offering? Yup, should do.
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Post by ablrateandy on Sept 10, 2015 11:39:47 GMT
I put the AER up there because it is how I, (as a lender as well as general dogsbody), look at my investments rather than buying or selling based upon a cash price. There is no point buying something at 100 and selling at 101 unless you can reinvest at a higher rate.
In short, yes - if you can sell something at an AER of 10% and buy something else with an AER of 12% you are ahead assuming that you reinvest all of the proceeds of sale. Our AER calculations are spot on apart from an error in the last month which I will resolve (although we tend to suspend loans in the last month anyway). Our calculations may differ from IRR and XIRR but that is due to Excel using slightly odd assumptions. If anyone wants a copy of a spreadsheet that shows you the results of the calculations I am happy to provide it.
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alan
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Post by alan on Sept 10, 2015 11:53:41 GMT
Thanks to Andy I have a copy of the spreadsheet because I wanted to calculate a bid price on the 2nd market by inputting the desired AER.
IIRC Andy the rate on new loans shows the Nominal?
Thanks
Alan
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Post by ablrateandy on Sept 10, 2015 12:07:42 GMT
Yes. New loans display what I call the Nominal Rate, in line with other platforms (which is the amount paid per period multiplied by the number of periods per year). So a 10% loan paid monthly (ie. 0.8333% per month) is equivalent to :
Monthly : 10.000%
Quarterly : 10.084%
Semi : 10.211%
Annual Equivalent Rate: 10.471%
ie. if someone was trying to sell you a loan paying semi-annually, you would need 10.211% per year in interest (5.105% per period) to get the same equivalent return. Funnily enough our system is supposed to show the AER as well but I think we pulled it cos the FCA can be a bit shirty about it looking like a bank account. Although apparently you can call an investment an "Account" now and nobody gives a hoot....
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stevio
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Post by stevio on Sept 13, 2015 13:10:58 GMT
Would it be useful to then have the AER as a column in the SM?
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Post by ablrateandy on Sept 13, 2015 13:44:07 GMT
If you click through into the loan, it is.
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alan
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Post by alan on Sept 13, 2015 14:35:43 GMT
What would be useful is to have the option to say what AER you want.
Unless you use the spreadsheet it is trial & error. Once selected it submits it so all you can do is cancel and try again.
Thanks
Alan
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