P2P Bad Debt Relief Post Publication of final guidance

The default position is that a purchased loan is not a simple debt for the buyer but the way some secondary markets work is by cancelling and reissuing, which creates a new simple debt.

I have a partial list of platforms and their status so far as I know them in the second post of the topic Capital Gains Tax filing needed?

What about SS, MT, FS and AB?

Thank, I've added that extra detail. What I'm doing is trying to properly record the sources for any statements that I make about this, since I usually won't know the status of particular platforms personally.

I've just had a brief read through the amended bill www.publications.parliament.uk/pa/bills/cbill/2016-2017/0047/cbill_2016-20170047_en_6.htm (just the sections on P2P! starts page 46) as it currently stands and in particular the supplementary provisions (p49 - )

Early on in this discussion there was concern that 'they' didn't define P2P / P2B ..... I note  that section 412 I makes some attempt.  I don't think that requirements A or B and C will be difficult for the members of this forum fit but worth a check.

What I do find interesting is (my bolding)

35    Subsequent recovery of peer-to-peer loans

(1)   This section applies where—

(a)  any amount of the principal of a loan has been deducted under this Chapter in calculating a person’s net income for a tax year,

and

(b)  the person subsequently recovers that amount or any part of it.

(2)  The amount recovered is to be treated for the purposes of this Act as if it were interest on the loan paid to the person at the time it was recovered.

(3)  For the purposes of this section, a person is to be treated as recovering an amount if the person (or any other person at his or her direction) receives any money or money’s worth

(a)  in satisfaction of the person’s right to recover that amount, or

(b)  in consideration of the person’s assignment of the right to recover it;

and where a person assigns such a right otherwise than by way of a bargain made at arm’s length the person shall be treated as receiving money or money’s worth equal to the market value of the right at the time of the assignment.

412F   Assigned loans treated as made by the assignee etc

(1)  This section applies where—

(a)  a person (“A”) is assigned the right to recover the principal of a loan,

(b)  the right is assigned through an operator (“O”),

(c)  A makes a payment in consideration of the assignment, and

(d)  A does not further assign the right.


(2)  The loan is to be treated for the purposes of section 412A(1) as

(a)  having been made by A, and
 
(b)  having been made through O.


(3)  The amount (if any) of the principal of the loan which is treated as irrecoverable may not exceed the amount which is arrived at by

(a)  taking the amount of the payment mentioned in subsection (1)(c), and

(b)  deducting any amount of the principal of the loan previously recovered by A.


Whilst this confirms that 'treated as irrecoverable' does not mean all recovery measures have been exhausted (and the loan written off) imho it opens other questions

What is a 'bargain made at arm's length' ?

How are professional recovery agencies costs and other professional fees treated?

If costs are deducted from recovered principal/capital are you as an 'person' deemed to have received that money (and therefore have to adjust the claim in the following year)?


Need to clear my head and have another read ......

duck Your quote starts with [section number] 35.  I don't know what happened there; it should be 412E.  AFAICS from a quick skim through, there are no changes from the original version of the Finance Bill. 

Thank you for flagging the "otherwise than at arm's-length" bit.  My first thought was not to worry about it, it's an anti-abuse rule that won't bite unless you do something bad (such as SteveT identifies).  But I'm not so sure.  One thing I have advocated before (though I'm not aware of an platform that has implemented it) is the ability to give away dud, otherwise untradeable, loan parts to charity in order to facilitate the closure of an account.  This provision would, I suspect, tax the donor on the fair value of the loan parts.

I don't think lenders are in any danger of being taxed on costs as if they were recoveries, which seems to be one of your concerns. The very worst that could happen is that they are not deductible against the recoveries to which they relate.  In this regard:

- The only lending that I do without the benefit of a provision fund is p2b. Costs there tend to be incurred by an administrator, for which there is no issue. Lenders' recovery is (as most) what the administrator pays out, net of costs. However, if the platform imposes further fees on top (mine historically have not), I suspect they might not be deductible (just as other platform fees to lenders are not).

- Where plaforms employ debt collectors to collect p2c loans, it would require more analysis of the documentation which I am not in a position to do, but I'd be suprised if their costs were not deductible in calculating recoveries.  It would be dead easy to write a contract to make sure of this: assign the debts to them for an arm's-length price calculated as a percentage of what they recover, to be deducted from the recoveries.  I suspect this is the basis on which many debt collectors work already.

Under your example, the only amount you would have received from the gross recovery of £80 is the net payment (after costs) of £5. If you had given direction that this £5 should be paid to someone else then you would still be liable to pay tax on it.