huxs
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Post by huxs on Feb 19, 2016 9:39:58 GMT
Am I correct that if you managed to sell this loan on the SM prior to the end of 5 years you would not pay any tax (or maybe capital gains) but the person who brought it would pick up the whole bill (aka the FS model), which would either make the buyer a fool or somehow tax exempt (which raises the question could this be moved into an ISA)?
I am really keen on this loan but picking up the full tax bill in the last year would be a real pain, if selling to myself or husband, yearly at a premium, would allow me to spread the tax over the 5 years that would make it much more beneficial but I don't see how this could be done?
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Post by ablrateandy on Feb 19, 2016 10:07:34 GMT
Hello, As james observed, the current operational method for C****** does not work particularly efficiently. It leaves him stuck with a loan for 6/7 months even if he sells his stock early - largely because we won't let him pay off early and potentially leave lenders losing out. C*******'s balance sheet is not well-suited to a five year loan. In addition, if he sells the containers faster he would like money faster - the SPV can get more containers on order same day, the aim being to have a continual stock arriving in the UK regularly for sale. This solution strikes a decent balance. One way to view it is as a supervised credit facility for CC. If he doesn't perform or decides to walk away, Kevin and I will take a decision on lenders' behalf as to whether we should use the funds elsewhere or wind it up. If we aren't getting to 15.4% then we'll be very honest about it - the main aim of the two of us is capital preservation.
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blender
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Post by blender on Feb 19, 2016 10:43:07 GMT
I am not into this one, Andy, but one thing does trouble me, and that is the number of hats you seem to be wearing. This is far away from the Ablrate platform as a neutral introducer of borrowers and lenders. I imagine you as effectively the CEO of Ablrate - no other full time employees? And also a director and presumably CEO of this proposed borrower - with a duty to the shareholders who are not the lenders. Presumably the equity is held by the directors, one of whom is also Ablrate, one of whom is not. I have full confidence in your ability and integrity, but structures usually provides clear separations of interests - especially in financial services. Just to ask, how are you going to handle any arising conflict of interest between lenders and borrower, when you are the borrower? Or have I misunderstood? - that happens too frequently.
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james
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Post by james on Feb 19, 2016 11:45:27 GMT
Am I correct that if you managed to sell this loan on the SM prior to the end of 5 years you would not pay any tax (or maybe capital gains) but the person who brought it would pick up the whole bill (aka the FS model), which would either make the buyer a fool or somehow tax exempt
Assuming normal UK income tax treatment, income tax is due on interest paid at the time the interest is received. For a secondary market sale the interest is received when the loan is sold because the buyer pays all of the accrued interest to the seller at that time. When the buyer sells or at maturity, they get the underlying interest payment but they had an unavoidable expense that I would be deducting from that interest, the amount of interest paid to the seller. I don't guarantee that this is correct UK tax treatment, it's just what I think makes sense. I am really keen on this loan but picking up the full tax bill in the last year would be a real pain, if selling to myself or husband, yearly at a premium, would allow me to spread the tax over the 5 years that would make it much more beneficial but I don't see how this could be done?
A couple or team might use the logic I gave to spread the income tax bill over many years by selling between themselves periodically. Or assuming that Ablrate becomes IF ISA eligible at some point, a purchase by the ISA could eliminate the issue. There is the issue of what price the ISA would have to pay to correctly reflect the accrued interest so it's not just a bogus price. I'm in a group who made an early commitment to lend on this deal so if the business does well and those lenders get paid a bit more, I might get that. See ablrateandy's post for more.
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Post by ablrateandy on Feb 19, 2016 12:17:47 GMT
Hi blender . Totally fair! To explain my role at Ablrate, I am not CEO. Far from it - I am "Head of Fixed Income" which means that I sort of get involved everywhere. Customer Services is Phil out in Henley. David is the CEO and takes care of the aircraft side, where he is far more knowledgeable than I. In terms of this role, it is very much an oversight role. 99% of the work will be done by C*****. Kevin and I will simply hold the purse strings and ensure that he does not over-stretch himself. If he is doing so, we will hold money back and/or re-deploy it through other guys that we know. This would be a tremendous growth for C****** that I have every confidence that they can fulfil BUT this gives lenders a bit more security than simply having six loans where we have little or no control. It also allows us to re-negotiate internal terms with C***** if, for example, he sells faster or slower than expected. My role here at Bailrigg is : (a) set up and run the website (b) protect lenders' interests In terms of (b) I would be doing that at Ablrate anyway, but this structure makes me personally more comfortable that I am more in control because I can sell assets and revoke contracts at will if needed. By being a director, we are limiting conflicts by ensuring that lenders' interests are specifically stated to come first - not Ablrate's or the directors. Ablrate is paid its fees and has no involvement or upside beyond those fees. The equity upside is for the directors - if we perform we get paid. If we don't, it'll have been a long five years . Kevin's role is to sort out accounting, finance and bring in other contacts. In terms of my other role alluded to, I am also on the Advisory Board of a fund. Again, I am there for a very niche purpose - to advise on peer-to-peer investments and to help to set up a bond issuance program. If there are dealings between them and Ablrate (or indeed if they invested in Bailrigg) I 100% exempt myself from the process.
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stevio
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Post by stevio on Feb 19, 2016 13:20:15 GMT
Am I correct that if you managed to sell this loan on the SM prior to the end of 5 years you would not pay any tax (or maybe capital gains) but the person who brought it would pick up the whole bill (aka the FS model), which would either make the buyer a fool or somehow tax exempt
Assuming normal UK income tax treatment, income tax is due on interest paid at the time the interest is received. For a secondary market sale the interest is received when the loan is sold because the buyer pays all of the accrued interest to the seller at that time. When the buyer sells or at maturity, they get the underlying interest payment but they had an unavoidable expense that I would be deducting from that interest, the amount of interest paid to the seller. I don't guarantee that this is correct UK tax treatment, it's just what I think makes sense. Trouble is James, what makes sense for us, is not always what the tax man thinks as well. I lose track of each platform, but is it not similar to FS? and if so, is it not the same tax problems? Hope you don't mind me asking James, you seem very keen on this, but do you have any financial interest in this other than as a lender in the normal way through Ablrate?
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duck
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Post by duck on Feb 19, 2016 13:21:45 GMT
A 'nuts and bolts' question if I may ablrateandy regarding selling loan parts between accounts. If my business was to buy into the loan but needed to sell before the 5 years are up could the loan parts be bought directly by myself (as an individual) so I could ensure the cash was available to the business at the time required? Are there any regulatory/ablrate 'rules' preventing this? I accept the loan parts could be put on the secondary market and they could well sell but this question relates to ensuring a sale from the business rather than depriving the market of loan parts.
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blender
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Post by blender on Feb 19, 2016 13:27:16 GMT
Hi blender . Totally fair! To explain my role at Ablrate, I am not CEO. Far from it - I am "Head of Fixed Income" which means that I sort of get involved everywhere. Customer Services is Phil out in Henley. David is the CEO and takes care of the aircraft side, where he is far more knowledgeable than I. In terms of this role, it is very much an oversight role. 99% of the work will be done by C*****. Kevin and I will simply hold the purse strings and ensure that he does not over-stretch himself. If he is doing so, we will hold money back and/or re-deploy it through other guys that we know. This would be a tremendous growth for C******* that I have every confidence that they can fulfil BUT this gives lenders a bit more security than simply having six loans where we have little or no control. It also allows us to re-negotiate internal terms with C****** if, for example, he sells faster or slower than expected. My role here at Bailrigg is : (a) set up and run the website (b) protect lenders' interests In terms of (b) I would be doing that at Ablrate anyway, but this structure makes me personally more comfortable that I am more in control because I can sell assets and revoke contracts at will if needed. By being a director, we are limiting conflicts by ensuring that lenders' interests are specifically stated to come first - not Ablrate's or the directors. Ablrate is paid its fees and has no involvement or upside beyond those fees. The equity upside is for the directors - if we perform we get paid. If we don't, it'll have been a long five years . Kevin's role is to sort out accounting, finance and bring in other contacts. In terms of my other role alluded to, I am also on the Advisory Board of a fund. Again, I am there for a very niche purpose - to advise on peer-to-peer investments and to help to set up a bond issuance program. If there are dealings between them and Ablrate (or indeed if they invested in Bailrigg) I 100% exempt myself from the process. Thanks for taking the trouble to explain. It has clearly been carefully thought through. I believe this should help potential lenders who may have been concerned by the close relationship between borrower and platform. The purpose is to create and use the relationship in support of lenders' interests.
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stevio
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Post by stevio on Feb 19, 2016 13:28:30 GMT
To confirm, is this loan open for pledges now? I am presuming that the lenders would have a legal charge over the SPV and thus the assets of the SPV (ie the containers)? Should the SPV be wound up, what priority would be given to the lenders? ie should the SPV have other creditors, directors remuneration, running costs etc, would they be paid first and the remaining funds distributed to lenders? So although this is asset backed, there are the costs of the SPV to take away from the underlying assets should they SPV be wound down? What would happen if Ablrate went pop? Would the loan still be able to continue/receive the 5yr return? Although you think this unlikely, a lot can happen in 5yrs and the Ablrate platform is relatively new, despite the overall experience of the directors Thinking out load: - extra 3.4%/year (£34 on the £1k) compared to 12% returns of some platforms - asset backed (via a SPV) - 'restricted' liquidity compared to some platforms - tax planning likely needed Reposting as my questions weren't answered
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Post by ablrateandy on Feb 19, 2016 13:48:11 GMT
stevio - I can confirm that james has no financial interest in Ablrate or (unless he chooses to be a lender which I wouldn't disclose!) in this loan. duck Our market is set up to create a "market" price. ie. the best bid and offer are always shown. If I was asked by HMRC whether a "fair market price" was used to transfer loan parts then I can categorically say "Yes. There is a market. Those loan parts were on offer and the buyer paid the market rate." That of course assumes that there was more than one bid and offer, but generally I would expect there to be so. As far as I know, HMRC's interest gets piqued when an off-market price is used. If I spotted someone washing loan parts at a price that I think is wildly wrong I would be obliged to inquire why you have done so. (I would consider anything outside 97-103 or with a negative or excessive yield to be off-market in normal conditions)
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Post by ablrateandy on Feb 19, 2016 13:56:05 GMT
Sorry stevio I have no idea how I missed that. 48 hours awake and only 20 mins sleep probably caused it! I am presuming that the lenders would have a legal charge over the SPV and thus the assets of the SPV (ie the containers)? - Yes. This is an unsecured loan to the SPV. The SPV has legal ownership of all of the assets. The directors are obliged to act in the interest of lenders ie. we will maximise the value of the assets and cash held at all times. Should the SPV be wound up, what priority would be given to the lenders? ie should the SPV have other creditors, directors remuneration, running costs etc, would they be paid first and the remaining funds distributed to lenders? So although this is asset backed, there are the costs of the SPV to take away from the underlying assets should they SPV be wound down? - Lenders are first in line in the event of a problem and we will NOT subordinate you. There is no directors' remuneration. Running costs will be accrued pro rata so there will be no deferral of obligations that could hit the assets in the event of insolvency. Our costs are purely accountancy. We are running a website for sales that could be shut down instantly (that will probably cost £500 to set up as a one-off cost and will be run in-house so there are no maintenance contracts etc). What would happen if Ablrate went pop? Would the loan still be able to continue/receive the 5yr return? Although you think this unlikely, a lot can happen in 5yrs and the Ablrate platform is relatively new, despite the overall experience of the directors - This company is totally separate from Ablrate. Ablrate are sourcing the lenders just as with any other loan but have no continuing obligations apart from making the repayment. It is up to Kevin and I (in a personal capacity) to run the company. Should anything happen to Ablrate, the company will get a copy of current lenders and ensure direct payment by acting as back-up servicer. In that event, obviously, secondary market trading would be difficult. Thinking out load: - extra 3.4%/year (£34 on the £1k) compared to 12% returns of some platforms - asset backed (via a SPV) - 'restricted' liquidity compared to some platforms - tax planning likely needed
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huxs
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Post by huxs on Feb 19, 2016 14:04:49 GMT
How would the SM price up this loan? If I am two years into the loan I would want to be selling it a something like 130%? and is that 30% counted as Capital gains not interest?
Also not sure I understand why the SPV couldn't pay interest (at least some interest) during the loans life? Surely the SPV will be making a profit in year one couldn't that be paid out as interest? This would greatly increase the liquidity on the SM and increase the appeal to most by partially removing a large tax implication from the final year.
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duck
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Post by duck on Feb 19, 2016 14:20:46 GMT
stevio ...... duck Our market is set up to create a "market" price. ie. the best bid and offer are always shown. If I was asked by HMRC whether a "fair market price" was used to transfer loan parts then I can categorically say "Yes. There is a market. Those loan parts were on offer and the buyer paid the market rate." That of course assumes that there was more than one bid and offer, but generally I would expect there to be so. As far as I know, HMRC's interest gets piqued when an off-market price is used. If I spotted someone washing loan parts at a price that I think is wildly wrong I would be obliged to inquire why you have done so. (I would consider anything outside 97-103 or with a negative or excessive yield to be off-market in normal conditions) sorry I think you misunderstood the point I was making (or possibly stopping something that could lead to bad places) ..... I was wondering if a simple transfer could be made if needs be at 100% i.e no premium/discount. If a transfer is not possible I accept my business could put the loan parts up for sale and I could probably recognise the offer and buy the parts myself if they didn't sell to another lender immediately, I'm just trying to sort out some 'logistics' rather than manipulating the market!
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unmadem
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Post by unmadem on Feb 19, 2016 14:30:47 GMT
Hi blender . Totally fair! To explain my role at Ablrate, I am not CEO. Far from it - I am "Head of Fixed Income" which means that I sort of get involved everywhere. Customer Services is Phil out in Henley. David is the CEO and takes care of the aircraft side, where he is far more knowledgeable than I. In terms of this role, it is very much an oversight role. 99% of the work will be done by C*****. Kevin and I will simply hold the purse strings and ensure that he does not over-stretch himself. If he is doing so, we will hold money back and/or re-deploy it through other guys that we know. This would be a tremendous growth for C****** that I have every confidence that they can fulfil BUT this gives lenders a bit more security than simply having six loans where we have little or no control. It also allows us to re-negotiate internal terms with C****** if, for example, he sells faster or slower than expected. My role here at Bailrigg is : (a) set up and run the website (b) protect lenders' interests In terms of (b) I would be doing that at Ablrate anyway, but this structure makes me personally more comfortable that I am more in control because I can sell assets and revoke contracts at will if needed. By being a director, we are limiting conflicts by ensuring that lenders' interests are specifically stated to come first - not Ablrate's or the directors. Ablrate is paid its fees and has no involvement or upside beyond those fees. The equity upside is for the directors - if we perform we get paid. If we don't, it'll have been a long five years . Kevin's role is to sort out accounting, finance and bring in other contacts. In terms of my other role alluded to, I am also on the Advisory Board of a fund. Again, I am there for a very niche purpose - to advise on peer-to-peer investments and to help to set up a bond issuance program. If there are dealings between them and Ablrate (or indeed if they invested in Bailrigg) I 100% exempt myself from the process. Thanks for taking the trouble to explain. It has clearly been carefully thought through. I believe this should help potential lenders who may have been concerned by the close relationship between borrower and platform. The purpose is to create and use the relationship in support of lenders' interests. ablrateandy strikes me there is some very good info here (and in some other responses) which should be added to the proposal doc in order to better info potential lenders who are not part of forum and also to help us if we need to find the info in say 3 years time.
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Post by ablrateandy on Feb 19, 2016 14:30:48 GMT
huxs If the SPV was continually paying interest it leads to a drag on performance that reduces the yield. Whilst not everyone will like the lack of regular payments, is does mean that the overall return is better as we can keep that money working. I'll leave someone to opine on tax. In practice, the secondary market will price this on an AER basis as with all loans, so I would expect people to look at the yield more than the cash price. If you bought at 15.4% and wanted to get out and crystallise that 15.4% then you would be selling on 28th August the capital at 90.68p in the pound (ie. one school of thought would see that as a capital loss) with 52.41p of accrued interest. You as the seller would have locked in a 15.4% return (100 in and 143.09 out in 2.5 years). If someone bought you out at 100p in the pound, you would have locked in an 18.4% return. duck - sorry I wasn't accusing you of malfeasance . If a secondary market transfer was not possible then we would be able to manually move it over at a fair value price.
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