SteveT
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Post by SteveT on Feb 20, 2017 14:58:20 GMT
I tend to assume a long-term rate of return from P2P of around 7-8% (after bad debts but before tax). The last couple of years have been better than this, but so have returns in most other asset classes. The current benign market conditions will not last forever!
If you're then paying 40% or 45% income tax on interest, that leaves 4-5% net, not much above your 3% loan rate and with magnified risks as well as reward. I too use borrowed funds to leverage my returns but happily at BBR + 0.35% (tracker mortgage, vintage 2007). I don't think I'll rate it an exercise worth continuing if/when BBR reaches 2.75%+
As to borrowing to invest in high risk equities (even with a tax rebate), I think I'll pass with markets this toppy.
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SteveT
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Post by SteveT on Feb 20, 2017 15:16:52 GMT
Surely VCTs pay dividends rather than interest? My only foray into VCTs (many years back) saw the tax relief barely covering the capital losses incurred. These days, I'm happy to say I don't pay enough tax to bother looking at them.
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james
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Post by james on Feb 20, 2017 15:24:08 GMT
What you're doing is entirely sensible and similar to what I do myself. However when I looked into loans I found that the odd place that appeared to allow loan borrowing for investment didn't really allow it. I expect that others would be interested in knowing which place allowed it.
When in a joking mood I'll sometimes write about how much tax I choose to pay rather than pay because I've now accumulated enough to make paying it optional. I can now afford VCT, EIS or SEIS buys to offset the tax, and do, limited by how accurately I can project my liability.
For those who don't know, VCTs tend to pay most of their returns in dividends that are tax exempt. Any capital gains which aren't instead paid as dividends are free of CGT. I'm not aware of any that pay interest.
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bg
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Post by bg on Feb 20, 2017 18:39:15 GMT
yes - I regret having paid off the mortgage losing a source of cheap borrowing. My coming out on top is really mainly based on the tax efficiency of the VCT versus the interest paid, the P2P is a bonus. The benefit would be greater if it all went to VCT but I don't want to commit that much. Just take a new mortgage on your home...it's what I did. You'll get a much lower rate. I also took a loan on a property I rent out to put into P2P as I get the additional (although soon to be reducing) benefit of tax relief on the interest payments. I haven't put anything in VCT's....i'm just not comfortable with the underlying investments (irrespective of the tax breaks, I really don't know enough about it.
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vmail
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Post by vmail on Feb 20, 2017 18:59:41 GMT
Does your loan company know that you took out the loan to put into an investment? I was told that this was a big no no. So I told them that I would use the loan to pay for an (imaginary) car.
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vmail
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Post by vmail on Feb 20, 2017 19:21:38 GMT
I haven't taken out a loan, I just enquired about it with NatW*st (25k @ 3.9%). They said no to investments and no to deposit for a house. They said if it's for renovations then they need to see a quotation, If it's to buy a car then there's no proof required.
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