mikes1531
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Post by mikes1531 on Nov 4, 2015 0:51:26 GMT
So anyone looking to sell their Anglesey loan parts to me will need to discount them by a minimum of 65%... : Did you mean "discount by 65%" or "discount to 65%"? In other words, are you meaning you'd be willing to pay 65p in the pound for Anglesey loan parts or just 35p in the pound?
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Post by mrclondon on Nov 4, 2015 1:02:15 GMT
So anyone looking to sell their Anglesey loan parts to me will need to discount them by a minimum of 65%... : Did you mean "discount by 65%" or "discount to 65%"? In other words, are you meaning you'd be willing to pay 65p in the pound for Anglesey loan parts or just 35p in the pound? I really did mean discount by 65% so I end up paying just 35p in the pound. (25% discount for potential capital loss, 40% discount for tying my money up for say another 2 years with no prospect of interest). Whilst you could argue with the exact figures I've used, the point I'm making is anyone buying Anglesey loan parts today would very likely receive no interest, so would be looking for a substantial discount beyond the expected capital loss to compensate. I simply can't see trading being allowed in such loans by AC or any platform. IIRC the FCA have indicated that they will not be requiring p2p ISAs to be capable of 100% liquidation to cash so that no longer is a driver for trading is distressed loans.
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bigfoot12
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Post by bigfoot12 on Nov 4, 2015 7:59:27 GMT
Another thought occurs to me - the capital loss cystallised by selling at a loss on a SM probably will not count towards the new p2p interest tax offset of written off capital which will only occur when the platform has exhausted all recovery routes. It might be worse than that. On another forum discussing a different product, there is the view that selling at a discount might lose you the right to claim a capital loss. However there are so many assumptions that it is clearly an area yet to be tested. The same goes for buying. I think that I would only buy such defaulted loans inside an ISA and then I don't have to worry about whether or not the gain is income or capital gain. I really did mean discount by 65% so I end up paying just 35p in the pound. (25% discount for potential capital loss, 40% discount for tying my money up for say another 2 years with no prospect of interest). I think you are right in that the buyers are not forced to buy, if they are sensible and know what they are doing they will assume something close to the worst reasonably case and bid there. Assuming that you are right about a potential 25% capital loss and money tied up for 2 years I would bid better than you. I would pay 55p in the pound. Which should be an IRR of about 17%. But I would be unlikely to buy anything until I had an ISA, or more clarity on the tax position.
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jo
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Post by jo on Nov 4, 2015 9:15:55 GMT
I bought some building society PIBS @ 50-70p in the £ during the financial crash. Guess what, no one screamed 'foul'.
So, again.
AC will evolve or the market will evolve around them.
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pikestaff
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Post by pikestaff on Nov 4, 2015 10:17:48 GMT
Another thought occurs to me - the capital loss cystallised by selling at a loss on a SM probably will not count towards the new p2p interest tax offset of written off capital which will only occur when the platform has exhausted all recovery routes. It might be worse than that. On another forum discussing a different product, there is the view that selling at a discount might lose you the right to claim a capital loss. ... There are two different reliefs to consider, assuming we are talking about UK resident individuals: capital loss relief under the existing law (against capital gains only), and the proposed income tax relief for capital losses. It is my understanding that, under the existing law, UK individuals do not get any relief for capital losses crystallised on a sale, if they are the initial lender. As far as the proposals are concerned, we will have a better idea when we see the draft legislation, which has been promised for later this year. My money is on 31 December. However, the technical note published on 24 March contemplates the relief being given to the person who is the lender "at the point when the loan is determined to have gone bad" [to be defined]. www.gov.uk/government/publications/peer-to-peer-bad-debt-relief-proposed-technical-criteria. This would tend to suggest that losses on sale will not be taken into account, but it will be interesting to see how the legislation deals with the purchaser's position. Suppose a loan of 100 is sold for 50 in anticipation of a loss which has not yet been recognised for tax purposes. Some time later the recovery comes in at 70 and the balance of 30 is written off for tax purposes. The seller won't get loss relief for the 30, because he or she has already sold the loan. Under the new law, when it comes in, will the purchaser get income tax relief on the "loss" of 30 even though s/he has actually made a gain of 20? Will the purchaser be taxed on the gain, and if so will it be taxed as income or capital?
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Post by Ton ⓉⓞⓃ on Nov 8, 2015 11:57:30 GMT
So any ideas what's likely to be the tax situation under the proposed regime when a debt has been declared bad (i.e. the recovery process started) and you've used the loss to off set tax. Only then for the loan to pay out? (I see this happening on Zopa(nonSG) not AC so much) EDIT To answer my own question. tonyr a possible answer was in Pikestaff's HMG link above. |
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tonyr
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Post by tonyr on Nov 8, 2015 11:59:53 GMT
So any ideas what's likely to be the tax situation under the proposed regime when a debt has been declared bad (i.e. the recovery process started) and you've used the loss to off set tax. Only then for the loan to pay out? (I see this happening on Zopa(nonSG) not AC so much) I've always taken it to be a capital loss in the tax year the default was made and a capital gain in the year that the payout was made.
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j
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Post by j on Nov 8, 2015 12:41:20 GMT
So any ideas what's likely to be the tax situation under the proposed regime when a debt has been declared bad (i.e. the recovery process started) and you've used the loss to off set tax. Only then for the loan to pay out? (I see this happening on Zopa(nonSG) not AC so much) I've always taken it to be a capital loss in the tax year the default was made and a capital gain in the year that the payout was made. Having read the above, I'm looking at Sth Coast Plumberman loan in particular. Considering default was official in Jan 2015, so we calculate any loss from loan in tax year 14/15 or wait until AC say there is no sign of any more money/we cannot retrieve any more capital & then count the loss in the tax year such news becomes official via AC? Better off, should we clarify with IR which rule they feel like applying to any given individual event?
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bigfoot12
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Post by bigfoot12 on Nov 8, 2015 14:24:47 GMT
I've always taken it to be a capital loss in the tax year the default was made and a capital gain in the year that the payout was made. Having read the above, I'm looking at Sth Coast Plumberman loan in particular. Considering default was official in Jan 2015, so we calculate any loss from loan in tax year 14/15 or wait until AC say there is no sign of any more money/we cannot retrieve any more capital & then count the loss in the tax year such news becomes official via AC? Better off, should we clarify with IR which rule they feel like applying to any given individual event? I think for UK resident ordinary individuals to claim the capital loss the holding has to be 'essentially worthless'. The plumber certainly wasn't essentially worthless before the recent payment. It might be now, but I don't think we could claim so yet until AC and the administrator have given up on it. (There might be something about the loans which makes my understanding incorrect, or the recent changes might supersede this.)
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pikestaff
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Post by pikestaff on Nov 8, 2015 23:29:14 GMT
Having read the above, I'm looking at Sth Coast Plumberman loan in particular. Considering default was official in Jan 2015, so we calculate any loss from loan in tax year 14/15 or wait until AC say there is no sign of any more money/we cannot retrieve any more capital & then count the loss in the tax year such news becomes official via AC? Better off, should we clarify with IR which rule they feel like applying to any given individual event? I think for UK resident ordinary individuals to claim the capital loss the holding has to be 'essentially worthless'. The plumber certainly wasn't essentially worthless before the recent payment. It might be now, but I don't think we could claim so yet until AC and the administrator have given up on it. (There might be something about the loans which makes my understanding incorrect, or the recent changes might supersede this.) That is the rule under the existing regime, and I would agree with your analysis. As I read the proposals, the new regime is likely to permit earlier recognition but we won't know until we see the legislation. The technical note says: "The proposed relief is intended to be available on P2P loans when:
the loan has been determined to be a “bad debt”,
HMRC is working with UK P2P platforms on the definition of a bad debt
- the intention is that this condition should be met when it becomes apparent it is not simply a case of late payment;"
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Post by andrewholgate on Nov 10, 2015 10:52:00 GMT
I'd say it is totally impossible to establish what is currrent fair value for those three loans. Yes, we might be 12+ months into the recovery process, but that is far too soon to be able to even guess at the most likely outcome. Ipswich - whilst it might be possible to come up with an implied value for the 1st charge security (assuming fully let by xmas as per last update), you then need to add on the value of the 2nd charge security (Epping) Epping - the receivers haven't been able to survey the property yet ... so not possible to draw any conclusions about value. Kent - the exact meaning of the planning rejection of 2014 still ambiguous and hence two different valuations could be attributed to the security. Receivers are about to invite offers which might throw some light on what others think. We probably need another 6 to 12 months of work from the receivers on all three of these to be able to have an informed opinion on the fair value of loan. Possibly the best and most reasonable post on our work I have seen. Thank you.
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Post by andrewholgate on Nov 10, 2015 11:04:41 GMT
I am regretting that 'pint' joke now ! My experience on other platforms with regards to failed loans leads me to think that a possible 24+ month liquidation, end to end (as you are suggesting), is a long one and probably too long to make a full recovery. With default interest being added there comes a point (see, my keyboard does work) when a full recovery becomes impossible and I am concerned (though I accept it is a fact of life) that not all parties involved have the same objectives. The administrators will need to be paid throughout the whole process and their charges will not be small or insignificant. I would like the option to realise my losses and move on, my assumptions about lost interest and opportunity costs inform that opinion for me but, I see that not all people share the feeling. I would certainly be interested to know what the total amount owed on this loan is now if we only half way through a possible recovery. There is a difference between recovery on loans with just a PG, and loans where there is an asset behind it. Ipswich - When we got hold of the asset we found it had been poorly managed. Simple things that make a difference to students like working wifi were lacking. AC have spent money rectifying small problems in order to make the property more attractive. At the last count 46 out of 49 rooms were let, compared to less than 50% of rooms last year. The wifi works, the boiler has been repaired, 7 rooms didn't have mattresses in them and so on. Selling a student property have 3 values; closed bricks and mortar value, B&M plus a little hope value and then open with good occupancy. The latter is the best value and in this case we have had to put in place a plan to get us there. We will get there. Epping is complicated. The borrower is being difficult and in order to effect the best recovery we have had to follow a due process through the courts. We cannot step outside of the process otherwise we invalidate the recovery, and unfortunately, this takes time. We will see how the eviction goes on 11th. Kent - Again a slightly difficult case where the borrower hasn't been too compliant. We still have some of here assets on site however, we do have control of the site now. This means we can market it and get a sale. To date, across the whole loan portfolio we are expecting to lose less than 1% of the capital put at risk. Over two and a half years, that is around 0.35% per annum on gross returns of 11%+ Would lenders prefer we just sold quickly and at a loss or that we follow the right processes and got the return on the money?
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bigfoot12
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Post by bigfoot12 on Nov 10, 2015 11:17:40 GMT
Would lenders prefer we just sold quickly and at a loss or that we follow the right processes and got the return on the money? What about allowing (heavily discounted) trade in these and similar loans. I know that it isn't straightforward and you have to protect customers, but it would allow those desperate to exit an option, even thought I suspect that they won't like the price. I wouldn't want anyone involved with origination to be distracted by this.
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jo
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Post by jo on Nov 10, 2015 11:51:25 GMT
Would lenders prefer we just sold quickly and at a loss or that we follow the right processes and got the return on the money? What about allowing (heavily discounted) trade in these and similar loans. I know that it isn't straightforward and you have to protect customers, but it would allow those desperate to exit an option, even thought I suspect that they won't like the price. I wouldn't want anyone involved with origination to be distracted by this. Thanks for bringing us back round to ramses505 's original point about selling at a heavy discount. We don't need to establish 'fair' value, we only need to establish the clearing price which matches a willing seller with a willing buyer, today, by means of price discovery. That is the primary transaction to focus on.
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Post by mrclondon on Nov 10, 2015 12:32:03 GMT
We don't need to establish 'fair' value, I suspect the FCA would beg to differ with that opinion. I've posted before that my guess is 5 years from now retail lenders will be barred by the FCA from individual loan transactions (and be forced into provsion fund backed accounts) unless they can self certify as High Net Worth / Sophisticated investors. Allowing trade in loans that can not be valued will only hasten the day when the FCA decide retail lenders need protecting from themselves.
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