pikestaff
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Post by pikestaff on Jan 15, 2016 18:46:45 GMT
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james
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Post by james on Jan 15, 2016 19:29:06 GMT
Nothing unexpected there. 36H only (or administering for 36H under 39G). And hopefully will be broadened to be more inclusive, but we'll just have to wait and see. |
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andy2001
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Post by andy2001 on Jan 15, 2016 22:15:55 GMT
Does anyone yet know if any IFISA yearly allowance would be in addition to the existing S&S ISA yearly allowance or would the existing allowance be shared/interchangeable somehow between the two types of investment? It will be shared.
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pikestaff
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Post by pikestaff on Jan 16, 2016 9:09:50 GMT
Nothing unexpected there. 36H only (or administering for 36H under 39G). And hopefully will be broadened to be more inclusive, but we'll just have to wait and see. Yes. I had hoped for some clarity on how p2p bed-and-ISAs might work but there is nothing. I suspect that's because the legislation is the wrong place and we will have to wait for HMRC guidance. The existing guidance (for shares) says: "6.14 The ISA subscription can be used to buy back the same investments within the ISA provided certain conditions are met. This is a ‘Share Exchange’ (sometimes called ‘Bed and ISAing’).
6.14a For any acquisition of investments in an ISA, the conditions that must be satisfied are as follows.
(a) The investments must not be purchased from the investor, or from the investor’s spouse or civil partner.
(b) The investments must be bought at the open market price”Clearly these conditions cannot practically be met for p2p because the markets are far too thin. I note that condition (b) does not accurately reflect the legislation (para 6(1)(c)), which refers to "the price for which those investments might reasonably be expected to be purchased in the open market". There is a bit of wiggle room here if HMRC is prepared to be practical. In my response to the consultation I argued that transfers at par plus accrued should be accepted for performing loans. In the absence of any change to the law, I am hoping that this might still be acceptable to HMRC where there is no evidence to the contrary. What I really don't want is the imposition of an expensive valuation requirement. It should not be necessary, because any tax leakage from transfers on this basis should be minimal. Edit: What I'd missed when writing this post is that condition (a), which is based on para 6(3)(b) of the legislation, will often be the real killer. See also p2pindependentforum.com/post/85803/thread
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blender
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Post by blender on Jan 16, 2016 12:26:32 GMT
It worries me that the explanatory memorandum makes no mention of transfers in other than cash:-
7.4 Investors wishing to subscribe to an innovative finance ISA can do so by paying cash
to an ISA provider, subject to the annual ISA subscription limit (currently £15,240).
This cash can be used to provide a loan to a borrower under an Article 36H
agreement. ISA tax advantages mean that income tax will not be chargeable on any
interest paid on this loan.
Do we think that bed and ISAs will be permitted? The lack of an open market valuation could be used to justify a prohibition.
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ablender
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Post by ablender on Jan 16, 2016 14:27:45 GMT
It worries me that the explanatory memorandum makes no mention of transfers in other than cash:- 7.4 Investors wishing to subscribe to an innovative finance ISA can do so by paying cash
to an ISA provider, subject to the annual ISA subscription limit (currently £15,240).
This cash can be used to provide a loan to a borrower under an Article 36H
agreement. ISA tax advantages mean that income tax will not be chargeable on any
interest paid on this loan.Do we think that bed and ISAs will be permitted? The lack of an open market valuation could be used to justify a prohibition. Can you please explain this for "dummies" (me)? Also in your explanation, are you (and pikestaff ) taking account that IFISA (PISA) is a new thing and that HMRC might allow something at the start which will not be allowed later? (Example on setting up of IFISA during the first x months one can incorporate loans already held in p2p.) Edit: I am aware that nothing official has been said indicating this, but do you know of any precedents which might show that this might (at least in theory) be possible?
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james
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Post by james on Jan 16, 2016 15:10:41 GMT
In my response to the consultation I argued that transfers at par plus accrued should be accepted for performing loans. The trouble with that is that it is obviously under-pricing of the true market value of the loans, if it is a par-only "market" where there is no real price discovery happening. All someone needs to do is look at real markets where prices can be set at say Ablrate and Bondora to see that par is not usually the market price for a loan with no impairment, at least for the most interesting places to many people here, the ones not pricing around 5% or below. With something like 1.5 million attempted deals and close to half a million completed deals in the Bondora dataset to prove the point. For places like RateSetter or Zopa there's no effective price-setting in a secondary market, the price is forced to current returns. That is, though, at least a price that responds to interest rate moves, so it's a more credible price than par only which completely ignores them. Somewhat moot for RateSetter where the pricing is likely to be so bad due to the term adjustment part that the loss could well exceed the potential tax gain. However, there is the question of what the rules are trying to achieve. For example, it might be trying to avoid people seeking to evade capital gains tax on the sale outside the wrapper. If so, par might achieve HMRC's objective because for the majority of P2P investors there is no prospect of CGT revenue due to the nature of the investments. So while the price may be too low, there's still no CGT cost to accepting par. Similarly, it might be trying to prevent people from magnifying the value of the annual allowance by making sales of a Pound's worth of assets at a penny, multiplying the effective value of the allowance by a hundred. Again, par restricts the potential for this. I don't really expect Treasury/HMRC to change the rules. By restricting the movement of existing investments into the P2P wrapper it'll reduce the initial tax cost of the policy and make it look better in Budget terms.
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james
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Post by james on Jan 16, 2016 15:18:06 GMT
It worries me that the explanatory memorandum makes no mention of transfers in other than cash:- 7.4 Investors wishing to subscribe to an innovative finance ISA can do so by paying cash
to an ISA provider, subject to the annual ISA subscription limit (currently £15,240).
This cash can be used to provide a loan to a borrower under an Article 36H
agreement. ISA tax advantages mean that income tax will not be chargeable on any
interest paid on this loan.Do we think that bed and ISAs will be permitted? The lack of an open market valuation could be used to justify a prohibition. You can't subscribe shares directly into a S&S ISA either, it has to be cash then a purchase, even if it is done for convenience by ISA managers as a bed and ISA transaction pair. If there is a genuine market at a particular P2P platform I see no ISA rule impediment to bed and ISA transactions. This might involve paying far more than par. So unattractive that it won't be done in practice if that's the pricing. New loans purchased within the ISA at issuance and sales outside would be the transaction pair to do instead, to avoid the effective reduction in value of the ISA allowance from doing the bed and ISA route.
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james
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Post by james on Jan 16, 2016 15:20:52 GMT
Also in your explanation, are you (and pikestaff ) taking account that IFISA (PISA) is a new thing and that HMRC might allow something at the start which will not be allowed later? (Example on setting up of IFISA during the first x months one can incorporate loans already held in p2p.) It would increase the early-year cost of the measure. That could make it look politically unattractive. Yet magic words like "to reward investors for the support they have already given we will for this year only permit transfers in at par without a requirement to sell and rebuy in a market" could also be seen as politically attractive to a government that wants to encourage business and alternative finance. After all, ISAs are competing with things like VCTs that would cost more in tax relief than the ISA.
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Jan 16, 2016 15:34:08 GMT
There doesnt seem to be much in this draft about transfers, seems to only be adding IFISA wording to paragraphs about admin regarding transfers. My understanding based on the response to the original consultation was that it was only cash that was going to be allowed to be invested into IFISA and that any transfers between ISAs would only be of cash, requiring loans to be liquidated. The only time when loans would be transfered without being liquidated was if they were being withdrawn from ISA wrapper altogether when the provider would be allowed to simply remove the ISA wrapper on those loans. Noticablely the 15/30 day transfer rule wont be universally applicable but left to T&CS except for cash holdings www.gov.uk/government/uploads/system/uploads/attachment_data/file/443481/PU1808_ISA_qualifying_investments_consultation_response.pdfSee 2.22 onwards 2.27 The government has noted respondents’ views on the difficulty of transferring peer-to-peer loans and believes that requiring the transfer of peer-to-peer loans between ISA managers would impose significant burdens on peer-to-peer businesses and potentially negative impacts on the consumer. Therefore the government has decided not require peer-to-peer loans held within ISAs to be transferable. However, the current ISA requirements that allow an investor to transfer their ISA investment within 30 days will be applied in relation to any cash held in an Innovative Finance ISA Doesnt preclude Bed & ISA but the practicalities seem to suggest that it would be unlikely. We shall see. Edit: crossed with james more knowledgable responses whilst I was starring at sub-clauses to paragraphs |
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blender
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Post by blender on Jan 16, 2016 16:30:55 GMT
It worries me that the explanatory memorandum makes no mention of transfers in other than cash:- 7.4 Investors wishing to subscribe to an innovative finance ISA can do so by paying cash
to an ISA provider, subject to the annual ISA subscription limit (currently £15,240).
This cash can be used to provide a loan to a borrower under an Article 36H
agreement. ISA tax advantages mean that income tax will not be chargeable on any
interest paid on this loan.Do we think that bed and ISAs will be permitted? The lack of an open market valuation could be used to justify a prohibition. Can you please explain this for "dummies" (me)? Also in your explanation, are you (and pikestaff ) taking account that IFISA (PISA) is a new thing and that HMRC might allow something at the start which will not be allowed later? (Example on setting up of IFISA during the first x months one can incorporate loans already held in p2p.) Edit: I am aware that nothing official has been said indicating this, but do you know of any precedents which might show that this might (at least in theory) be possible? I am a dummy also when it comes to these rules. Essentially, when the IFISA starts we will wish to transfer in some of the loans we already hold (via some compliant process), rather than sell them openly and buy new ones within the wrapper. If for example FC offers an IFISA in which you can hold only FC loan parts, then you would think they would wish to avoid a huge sale on the SM and a huge repurchase. The problem is that the value of transferred in investments has to be known, as is done by sale and immediate repurchase of shares. But a process of selling and rebuying FC loans would not discover the market price because that process would involve a considerable percentage of loan parts held and could be distort the price. The gains through tax relief on loans would be substantial enough to attract many. Personally I think I would buy afresh and then sell the old ones - if I can. I will try to keep liquid through March and look for opportunities. Thanks others for your advice - I cannot see a route other than sale through the SM - on sites which have one. And on sites which have a fixed rate dependent on length of hold that could be a real problem.
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pikestaff
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Post by pikestaff on Jan 17, 2016 8:14:56 GMT
In my response to the consultation I argued that transfers at par plus accrued should be accepted for performing loans. The trouble with that is that it is obviously under-pricing of the true market value of the loans [...] However, there is the question of what the rules are trying to achieve. For example, it might be trying to avoid people seeking to evade capital gains tax on the sale outside the wrapper. If so, par might achieve HMRC's objective because for the majority of P2P investors there is no prospect of CGT revenue due to the nature of the investments. So while the price may be too low, there's still no CGT cost to accepting par. Similarly, it might be trying to prevent people from magnifying the value of the annual allowance by making sales of a Pound's worth of assets at a penny, multiplying the effective value of the allowance by a hundred. Again, par restricts the potential for this. [...] That's what I argued in my response. And even where sales at a premium might create a CGT liability (sales of loans which were truly second-hand when purchased), we are likely to be looking at premiums which are a small fraction of par. This is very different from shares where gains are open-ended. [...] I don't really expect Treasury/HMRC to change the rules. By restricting the movement of existing investments into the P2P wrapper it'll reduce the initial tax cost of the policy and make it look better in Budget terms. You may well be right, although the govt seems very keen on p2p. Even without a law change I think there is scope for HMRC to be more flexible, but we shall have to wait and see what the HMRC's guidance says. Edit: But that's forgetting the condition about not being able to buy from the investor. Where this bites, it will be very hard to fix that without a change in the law - see also my next post.
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pikestaff
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Post by pikestaff on Jan 17, 2016 8:37:37 GMT
It worries me that the explanatory memorandum makes no mention of transfers in other than cash [...] Do we think that bed and ISAs will be permitted? The lack of an open market valuation could be used to justify a prohibition. You can't subscribe shares directly into a S&S ISA either, it has to be cash then a purchase, even if it is done for convenience by ISA managers as a bed and ISA transaction pair. If there is a genuine market at a particular P2P platform I see no ISA rule impediment to bed and ISA transactions. This might involve paying far more than par. So unattractive that it won't be done in practice if that's the pricing. New loans purchased within the ISA at issuance and sales outside would be the transaction pair to do instead, to avoid the effective reduction in value of the ISA allowance from doing the bed and ISA route. I think it's worse than that. Secondary markets on p2p platforms are so thin that I don't think you could have any real confidence of being able to buy your loan parts back unless either (1) you were willing to pay over the odds or (2) it was done in some kind of instantaneous sale and repurchase, which would not establish a true market value. In addition to which, there is the other condition: "The investments must not be purchased from the investor, or from the investor’s spouse or civil partner." Bed and ISAs for shares get round this because there are, as a matter of legal form, two separate transactions with the market and you are not necessarily buying your own shares back. Very often on p2p markets you would be. There is no "market maker" standing in the middle. It's hard to see how this can be fixed for p2p without a change in the law. Having said that, I suppose HMRC might accept the legal fiction that the ISA is investing in a new loan part, on platforms that structure their SM transactions in such a way as to achieve this. PS: ilmoro ( p2pindependentforum.com/post/85694/thread ) I was thinking of on-platform bed and ISAs. I agree that cross-platform bed and ISAs are extremely unlikely.
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webwiz
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Post by webwiz on Jan 17, 2016 9:26:51 GMT
One saving grace is that most p2b and some p2p is relatively short term, so loans will not sit outside an ISA, when they could otherwise have been in it, for too long. As loans repay and new loans are bought with the proceeds the portfolio can gradually be moved into the tax free zone.
Also we are not talking about large sums. Even at 12% £15240 yields £1828, giving a tax saving of £365 or £731 and the biggest platforms pay much lower rates. All savings will get £500 or £1000 tax free anyway so frankly ISTM that it is no big deal for either small or large investors.
Of course if past years ISas currently in cash or shares could be liquidated and transferred into a IFISA that would be different, but this is most unlikely IMO.
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pikestaff
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Post by pikestaff on Jan 17, 2016 11:48:08 GMT
Of course if past years ISas currently in cash or shares could be liquidated and transferred into a IFISA that would be different, but this is most unlikely IMO. Based on the draft legislation this is undoubtedly possible, and I plan do just that. For most people, stocks and shares ISAs have little value as a tax shelter and they would be better off taking their stocks and shares outside and putting their p2p inside. That's especially so for people with 6 figure portfolios. Having got my money into my IFISA I'd like to get it invested quickly by transferring my existing investments across - which I may not be able to do.
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