Post by guateandrew on Feb 3, 2017 16:12:15 GMT
I guessing that this might be different in different tax jurisdictions, but generally:
In most jurisdictions these are different rates - for example, if you are a higher earner in the UK your income tax rate is 45% which your capital gains rate is 28%.
If I invest in 100 x £100 pound loans, that pay 12% but have an expected loss of 5%, most sites will say that you are effectively earning 7%.
But on your tax statement, you'll show $1200 of income (net £660) and a loss of £500 (assuming you have capital gains to offset, then tax credit for £140, leaving a net loss of -£360). Overall a £300 after tax gain on £10,000 or 3%. It is as if you were effectively paying 57% tax on that 7%. Significantly less than what you might think. Note, this is not to say those sites are misleading, rather they don't know your personal tax situation.
But overall this is important for a few reasons:
1. In assessing the actual risk of many P2P investments. If the after-tax treatment of certain investments worth the additional risk?
2. Some P2P products may be structured in a way that are more tax effective. Zopa, Growth Street, Twino & Mintos (guaranteed notes) are structured so you don't ever have a capital loss. But then you often have platform risk.
Thoughts?
- the interest you receive from P2P investing is taxed at your marginal income tax rate
- while any losses are effectively taxed at your marginal capital gain rate.
In most jurisdictions these are different rates - for example, if you are a higher earner in the UK your income tax rate is 45% which your capital gains rate is 28%.
If I invest in 100 x £100 pound loans, that pay 12% but have an expected loss of 5%, most sites will say that you are effectively earning 7%.
But on your tax statement, you'll show $1200 of income (net £660) and a loss of £500 (assuming you have capital gains to offset, then tax credit for £140, leaving a net loss of -£360). Overall a £300 after tax gain on £10,000 or 3%. It is as if you were effectively paying 57% tax on that 7%. Significantly less than what you might think. Note, this is not to say those sites are misleading, rather they don't know your personal tax situation.
But overall this is important for a few reasons:
1. In assessing the actual risk of many P2P investments. If the after-tax treatment of certain investments worth the additional risk?
2. Some P2P products may be structured in a way that are more tax effective. Zopa, Growth Street, Twino & Mintos (guaranteed notes) are structured so you don't ever have a capital loss. But then you often have platform risk.
Thoughts?