littleoldlady
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Post by littleoldlady on Dec 14, 2015 15:21:06 GMT
Another small step in the right direction:
Previously investors were prohibited from offering for sale, investments on the secondary market which would result in a negative effective rate. This will change at midnight tonight to a minimum of 4% pa
I would still prefer no premiums but this may be the best we can get.
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oldgrumpy
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Post by oldgrumpy on Dec 14, 2015 15:22:56 GMT
If I have read the email message correctly re. tax, I shall not be buying anything at all on the secondary market.
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rogerbu
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Post by rogerbu on Dec 14, 2015 15:38:31 GMT
I assume that FS's understanding on Income tax (that the loan holder at completion pays all the tax) applies equally to SMs on other platforms, all be it for the monthly interest paid. Should make reconciling our records to platform's tax statements interesting.
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ablender
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Post by ablender on Dec 14, 2015 15:42:51 GMT
I assume that FS's understanding on Income tax (that the loan holder at completion pays all the tax) applies equally to SMs on other platforms, all be it for the monthly interest paid. Should make reconciling our records to platform's tax statements interesting. I do not think it applies to all. On SS, for example, if I buy a loan part I do not pay the seller the amount of interest accrued. Instead SS keeps track of how much interest goes to the seller and how much interest goes to the borrower and this is paid respectively at the end of the month. This issue arises from the SM implementation on FS were the buyer has to pay the seller the accrued interest at the point of sale.
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Post by mrclondon on Dec 14, 2015 15:54:11 GMT
Agreed, another step in the right direction.
fundingsecure have you given some consideration to providing a finer granularity of the premium / discounts (particularly between 1 and -1 ) ? For most of the 5th month a premium of 1% will produce an effective rate of less than 4% (now blocked); and as I noted earlier in this thread a basic rate tax payer would like a discount of 0.2% per month of the loan parts age to cover the tax liability.
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rogerbu
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Post by rogerbu on Dec 14, 2015 15:57:12 GMT
I assume that FS's understanding on Income tax (that the loan holder at completion pays all the tax) applies equally to SMs on other platforms, all be it for the monthly interest paid. Should make reconciling our records to platform's tax statements interesting. I do not think it applies to all. On SS, for example, if I buy a loan part I do not pay the seller the amount of interest accrued. Instead SS keeps track of how much interest goes to the seller and how much interest goes to the borrower and this is paid respectively at the end of the month. This issue arises from the SM implementation on FS were the buyer has to pay the seller the accrued interest at the point of sale. Sorry I don't agree. The HMRC info is very clear "Similarly, if the ownership of a bank account or other interest-bearing investment changes, the new owner will be taxable on the whole of the next interest payment that is credited or paid." Interest is only due and paid on a specific date. The holder on that date is logically being credited with all interest due and is due to pay tax on that. If SS (for example) then logically credits the seller with an amount equal to the Accrued Interest up the sale date. That is Accrued Interest and is such not reported to HMRC. If SS (for example) were a party to a/the Accrued Interest Scheme, then interest could be paid pro-rata and taxed accordingly. Otherwise it doesn't seem that the rules support crediting interest pro-rata between seller & buyer. So I still believe that these rules apply to other platforms.
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ramblin rose
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Post by ramblin rose on Dec 14, 2015 16:29:59 GMT
I do not think it applies to all. On SS, for example, if I buy a loan part I do not pay the seller the amount of interest accrued. Instead SS keeps track of how much interest goes to the seller and how much interest goes to the borrower and this is paid respectively at the end of the month. This issue arises from the SM implementation on FS were the buyer has to pay the seller the accrued interest at the point of sale. Sorry I don't agree. The HMRC info is very clear "Similarly, if the ownership of a bank account or other interest-bearing investment changes, the new owner will be taxable on the whole of the next interest payment that is credited or paid." Interest is only due and paid on a specific date. The holder on that date is logically being credited with all interest due and is due to pay tax on that. If SS (for example) then logically credits the seller with an amount equal to the Accrued Interest up the sale date. That is Accrued Interest and is such not reported to HMRC. If SS (for example) were a party to a/the Accrued Interest Scheme, then interest could be paid pro-rata and taxed accordingly. Otherwise it doesn't seem that the rules support crediting interest pro-rata between seller & buyer. So I still believe that these rules apply to other platforms. That all sounds pretty wonky to me. Accrued interest is interest that is due in theory, Paid interest is interest that has been paid, and it is on Paid interest that tax is due. On FS SM, the buyer pays an amount equal to the accured interest to date, AS CAPITAL AND NOT INTEREST, to the seller. The buyer then receives all of the interest accrued on the loan part at the end of the term. It is because they have been Paid all of the interest that FS say they will pay all the tax. On SS and AC, for example, Accrued interest up to the point of being put up for sale / sale (for SS and AC respectively) stays with the seller after the sale, and interest starts to accrue to the buyer from the point of purchase onwards. At the next payment date, they are each Paid their relevant part of the accrued interest. Since that's the only interest the buyer has received, that's all they pay tax on. And the seller pays the tax on the part they were Paid.
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SteveT
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Post by SteveT on Dec 14, 2015 16:52:53 GMT
Exactly. On SS and AC, the buyer is NOT buying the right to be paid interest previously accrued, only the outstanding capital at the date of sale. No interest has been paid at that point but the rights to the future interest payment (if and when it is paid!) are divided between the two owners.
I cannot see why FS could not have adopted this approach too.
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duck
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Post by duck on Dec 14, 2015 17:17:32 GMT
Sorry I don't agree. ...... ..... and it is on Paid interest that tax is due. ..... I'm not disputing most of your post RR, simply being a little pedantic  In the eyes of HMRC tax is due under the 'payment on account scheme' based on the previous years 'earnings' so you can (and are) taxed on 'interest' that has not even been accrued. www.hmrc.gov.uk/manuals/salfmanual/salf303.htm
... under declare/base on the previous year and interest is payable as well (I'm going to be hit by that simply because I've had a good year investing)
Yes I'm feeling bitter and twisted as my bill for settlement in Jan sits before me 
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littleoldlady
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Post by littleoldlady on Dec 15, 2015 9:28:23 GMT
It appears to me that the tax can easily exceed the interest so it is still likely that loans will be offered which will result in a loss after tax. Can someone cleverer than me do a worked example of a loan with a month to run at the maximum premium for a higher rate taxpayer?
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pom
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Post by pom on Dec 15, 2015 9:59:31 GMT
It appears to me that the tax can easily exceed the interest so it is still likely that loans will be offered which will result in a loss after tax. Can someone cleverer than me do a worked example of a loan with a month to run at the maximum premium for a higher rate taxpayer? For simplicity lets assume loan is 12% and sold at par with 1mth to go - interest received =1%, taxable interest = 6%.....therefore 40%of 6% =2.4% tax due....... Which is why I'm getting out of FS Edit in fairness I decided I probably wasn't going to stick around months ago and have just been waiting for my last couple of loans to repay (they were already in their last month when the secondary was launched) but unless FS change the way they do things drastically I won't be reconsidering this
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littleoldlady
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Post by littleoldlady on Dec 15, 2015 10:47:17 GMT
It appears to me that the tax can easily exceed the interest so it is still likely that loans will be offered which will result in a loss after tax. Can someone cleverer than me do a worked example of a loan with a month to run at the maximum premium for a higher rate taxpayer? For simplicity lets assume loan is 12% and sold at par with 1mth to go - interest received =1%, taxable interest = 6%.....therefore 40%of 6% =2.4% tax due....... Which is why I'm getting out of FS Edit in fairness I decided I probably wasn't going to stick around months ago and have just been waiting for my last couple of loans to repay (they were already in their last month when the secondary was launched) but unless FS change the way they do things drastically I won't be reconsidering this Unlucky that your remaining loans did not have a month and a day or two. You could have sold them (even at a small discount!) and saved yourself some tax. But hard luck on the unsuspecting mug who bought them. I wonder if FS will ever admit that they got this wrong.
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pom
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Post by pom on Dec 15, 2015 12:14:24 GMT
For simplicity lets assume loan is 12% and sold at par with 1mth to go - interest received =1%, taxable interest = 6%.....therefore 40%of 6% =2.4% tax due....... Which is why I'm getting out of FS Edit in fairness I decided I probably wasn't going to stick around months ago and have just been waiting for my last couple of loans to repay (they were already in their last month when the secondary was launched) but unless FS change the way they do things drastically I won't be reconsidering this Unlucky that your remaining loans did not have a month and a day or two. You could have sold them (even at a small discount!) and saved yourself some tax. But hard luck on the unsuspecting mug who bought them. I wonder if FS will ever admit that they got this wrong. Actually apart from the last couple I also had a few more that I could sell (not many as I had nothing with more than 2months to go) some of which I did sell at 1% premium (wasn't going to charge more than they'd earn during the remaining term...didn't realise about the tax at that point!), some at par when it didn't shift instantly @1% - so I did quite well out of those. But part of the reason I didn't go further than a generous toe dip in the platform was that I didn't like the combination of no SM and zero payments until the end. Was prepared to change my mind if an SM came along....but I now rather suspect that once people start to realise the real cost at the end of the tax year if not before then the SM will rapidly dry up....
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SteveT
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Post by SteveT on Dec 15, 2015 12:21:18 GMT
I'm assuming the same, but it hasn't happened yet; people keep buying parts from me at 2% premium and 7-8% yield. I've effectively flipped the same £500 about 3 or 4 times since the SM went live, which must give a stupid IRR.
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pom
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Post by pom on Dec 15, 2015 12:33:03 GMT
I'm assuming the same, but it hasn't happened yet; people keep buying parts from me at 2% premium and 7-8% yield. I've effectively flipped the same £500 about 3 or 4 times since the SM went live, which must give a stupid IRR. People are still buying at 2%!?! Sheesh there's gonna be a lot of burned fingers out there....and a LOT of noise when they eventually realise. Caveat Emptor is one thing but I wouldn't be surprised if there could be a decent argument that FS shouldn't have allowed any sales that would result in a loss, and should have implemented a minimum return from the outset. And even if nothing sticks legally, I have to wonder how many investors they'll hang onto in the longer term, and what that might do for their future.... which is why I'm not touching them with anyone's bargepole right now.
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