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Post by fundingsecure on Nov 25, 2015 15:26:48 GMT
We are very pleased to announce the launch of a secondary market, enabling investors to buy and sell loan parts. The aim of the secondary market is to give an opportunity for existing investors to liquidate their holdings and for all members to diversify their investments. Once logged in you can access the secondary market by selecting the appropriate section from the normal menu on the left. There is also a help page available which gives further details. More DetailsFundingSecure |
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LittleBear
Member of DD Central
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Post by LittleBear on Nov 25, 2015 15:29:57 GMT
Great news! Well done FS :-)
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Post by mrclondon on Nov 25, 2015 15:49:02 GMT
Fantastic news !
One small request - it would be really helpful if current holdings in a loan could be displayed.
And a cautionary note with regard to this style of secondary market where you pay the seller for accrued interest ... most (possibly all ?) platforms add the whole of the interest received at the end of loan (i.e "purchased" interest as well as that accrued since the puchase) onto the taxable income statement AS WELL AS adding the "sold" interest onto the sellers taxable income statement. So the message is unless you want to pay upto 45% of the value of the purchased interest in tax, tread carefully.
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Post by Financial Thing on Nov 25, 2015 15:52:51 GMT
And a cautionary note with regard to this style of secondary market where you pay the seller for accrued interest ... most (possibly all ?) platforms add the whole of the interest received at the end of loan (i.e "purchased" interest as well as that accrued since the puchase) onto the taxable income statement AS WELL AS adding the "sold" interest onto the sellers taxable income statement. So the message is unless you want to pay upto 45% of the value of the purchased interest in tax, tread carefully. To understand, you're saying then when one purchases a SM piece, it's listed on tax statement so that one would be paying tax on the interest accrued prior to the purchase date? How does one avoid this?
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Post by mrclondon on Nov 25, 2015 16:00:13 GMT
To understand, you're saying then when one purchases a SM piece, it's listed on tax statement so that one would be paying tax on the interest accrued prior to the purchase date? How does one avoid this? Correct. How to avoid - hope that FS is the first platform to correctly code this with an allowance for the purchased interest. Unfortunately FS don't have real time tax statements on the site, so no way of knowing for sure until next April. In the meantime I'll purchase just one £25 loan part on the SM before next April as a test.
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SteveT
Member of DD Central
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Post by SteveT on Nov 25, 2015 16:10:25 GMT
I'm pleased to see that FS have made sure deeper-pocketed lenders can't invest heavily in large loans initially, taking advantage of bonus interest rates, and then sell on parts of their stake on the SM. Or at least, they can, but they will only receive the bonus interest on the sum they actually still hold in the loan when it completes.
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LittleBear
Member of DD Central
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Post by LittleBear on Nov 25, 2015 16:12:33 GMT
fundingsecure would it be possible to make user settings 'sticky', please? For example, I selected to display 100 entries in the list. Every time I refresh, I have to select it again. Similarly with the column I have chosen to sort on. It would be much better to retain the selected settings. Thank you!
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Post by fundingsecure on Nov 25, 2015 16:12:16 GMT
Let me clarify the position regarding taxation.
Firstly, to be clear, liability and payment of tax is up to the individual, depending upon their individual circumstances. All we can do is provide an annual statement confirming the interest that you have earned during a tax year.
When selling a loan on the secondary market - the amount you receive for the loan is a pure sale and is therefore not taxable. Although the amount includes the nominal accrued interest - this is not "interest earned" and therefore is not listed on the earned tax report.
When any loan completes (whether purchased at the start of the loan or through the secondary market) the investor receives interest.
When you download the tax figures for the year from our site the interest earned will reflect only the interest earned when a loan is completed.
Because of the above anyone selling at par (0%) actually gains a small (income tax) advantage.
Hopefully this helps to clarify the position.
FundingSecure
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Post by mrclondon on Nov 25, 2015 16:20:41 GMT
Interesting. Sounds like the strategy has to be to (try to) sell in the penultimate month of the loan to transfer the tax liability to the unsuspecting purchaser. Nice.
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huxs
Member of DD Central
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Post by huxs on Nov 25, 2015 16:48:50 GMT
Interesting. Sounds like the strategy has to be to (try to) sell in the penultimate month of the loan to transfer the tax liability to the unsuspecting purchaser. Nice. So the unsuspected purchaser gets hit with a full tax bill for the full 6months of interest even if the actual interest earned would only be from the last 30days ? Hmm don't like the sound of that !
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Post by mrclondon on Nov 25, 2015 17:02:58 GMT
Interesting. Sounds like the strategy has to be to (try to) sell in the penultimate month of the loan to transfer the tax liability to the unsuspecting purchaser. Nice. So the unsuspected purchaser gets hit with a full tax bill for the full 6months of interest even if the actual interest earned would only be from the last 30days ? Hmm don't like the sound of that ! 'fraid so. Essentially ALL parts should be trading at a DISCOUNT to reflect the tax due on the accrued interest. (I'll have a play with a spreadsheet later to see if I can deduce what fair value is for the various tax bands and how far through the loan the transaction occurs. ) Predictably most parts are being listed at a premium even though the 12%/13% yield is barely enough to compensate for capital losses. The one part I listed at par got snapped up in seconds. I've listed a few others at various premiums to see what the tolerance level is, and will drop them to par in due course. Ultimately I think the FCA will have to provide guidance on the operation of secondary markets to avoid SM purchasers being ripped off - a 5% premium on a loan lasting 31 (more) days yielding 1% per month or a guaranteed 4% loss (even before the tax on accrued interest) is just asking for regulatatory intervention.
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Monetus
Member of DD Central
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Post by Monetus on Nov 25, 2015 17:17:53 GMT
Yes we definitely need some further clarification on this. The tax would have to be taken into consideration for sure. I will hold off investing further in the SM until I can establish exactly how it's going to work.
I would have personally preferred to see a secondary market where you could sell at par only and not with premiums etc. For me it just adds another layer of complexity and I'd prefer to keep things simple.
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Post by mrclondon on Nov 25, 2015 17:25:57 GMT
After a quick bit of playing in Excel, I've deduced that a buyer would need to demand a DISCOUNT of a hundredth of their tax rate per month of the age of the loan part to cover the tax due on the accrued interest they are purchasing (based on 12% annual yield)
E.g. a 20% tax payer, buying a loan part that is 3 months old would need a discount of 0.2% x 3 = 0.6%
a 45% tax payer, buying a loan part that is 5 months old would need a discount of 0.45% x 5 = 2.25%
Which is an immediate problem as the granularity of the premium / discounts allowed is multiples of 1%
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ianj
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Post by ianj on Nov 25, 2015 17:26:09 GMT
When specifying the amount of capital to purchase you're not told
a) what the potential interest would be for the remainder of the six months
b) the effective interest rate (Premium/Discount included)
It's surely essential to be armed with this information before considering purchasing on an SM involving the payment of a premium, something I've always steered well clear of.
Having the real returns included in the Price Breakdown may well steer the more gullible from 5% premium offerings where interest for the complete term barely covers the premium cost.
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arbster
Member of DD Central
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Post by arbster on Nov 25, 2015 17:27:00 GMT
Interesting. Sounds like the strategy has to be to (try to) sell in the penultimate month of the loan to transfer the tax liability to the unsuspecting purchaser. Nice. Of course, for non-taxpayers this is not so much of an issue, which I suppose could lead to collusion and inducements to assist in the avoidance of tax through the transfer of tax liabilities via the SM.
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