Saving Stream now an illiquid monster...

For all platforms I'm using what's on their tax statement. At the time of completing my tax return I save a PDF copy of all certificates from each platform so I have the evidence to backup my return figures. This also guards against later changes to the certificate (which shouldn't really happen).

For FS you should be able to use the 'Capital losses from defaulted loans' minus the 'Capital recovered from defaulted loans' (*) figure as a loss. If the figure is negative that signifies a gain, the positive equivalent amount should be added to your interest.

* If the recovery is from a previous tax year it would depend on whether the loss was claimed as to whether it should be deducted from your claim. 

My opinion, not a tax expert. 

Sorry to come back to this comment but I don't come to the forum very often. Respectfully I would submit that you are missing the fact that pricing at par (and therefore a constant yield) is creating an arbitrage. P2P loans are not equities and should not be treated as such. They are fixed income products. The basic risk-return proposition of a fixed income product is that you take risk (interest rate risk, credit risk, counterparty risk etc) in exchange for a return: a fixed periodic coupon. Given that the risks are are not constant or fixed, but the return is, then there will be a mismatch between risk-return relationship over the term of the product. To compensate for this, the price of the fixed income product will need to vary. The yield will also need to vary in a non-linear manner given the convex price-yield relationship. This is why the key aspect in the analysis of all fixed income products is the shape of the yield curve (yield vs. time).

Lets take a concrete example. A typical old school SS 12-month bridge loan, 12% coupon, paid monthly in arrears. All interest and fees taken upfront so that there is little or no default risk before term. If we let the default probability be say 20%/annum and the PV( recovery) = 60%, then the"fair value" of that loan at origination is 103.8. To trade at par that loan would need to yield 8.14%. If we now move to look at this loan just 1 month prior to term, then the "fair-value" price of the loan would drop to 92.8. The yield required to be priced at par would need to be 120%. So over the lifetime of this loan, the "fair-value" price moves from 103.8 to just 92.8 and the yield from 8.14% to 120%! I could easily plot the yield curve for this loan to be priced at par. It would become obvious that the fair-value price would drop below par at somewhere just above 90-days to term. 

Now this is a heavily stylised example. I've ignored interest rate risk, counterparty risk etc and just focused on credit risk, with quite high default risk and low recovery. Assuming a pure jump to default at term is a good approximation for a property bridge but not a development loan etc. The point, however, is that by forcing the price to remain at par (and the yield at 12%) you are not avoiding an arbitrage; in fact you are creating an arbitrage (a "soft arb" to be fair). Yes there is no arb in clean price terms, but there is an arb in time and that leads to an arb in total return terms. The buyer of the loan at 12-month would have accrued 11% for virtually no risk, the buyer at 1-month would be looking at an expected return of -7.2% (the sum being, of course 3.8%, the premia above par of the loan at origination). This situation has only been sustainable because there was a surplus of lenders vs. origination volumes. However, markets hate an arb and this one has disposed of it by simply making the market illiquid for short-dated loans. 

I know many people here don't like variable pricing but you simply can't treat fixed income loans like savings accounts or fixed term depos. Variable pricing is needed to allow the return to reflect the risk, as in every other fixed income market. With regard to things like "flipping"on FC. In reality this was just FC's way of getting loans underwritten. The alternative used by AC and TC etc was to pay people like myself a premium to underwrite loans before launch. Such a form of underwriting reduced yields for for retail lenders easily as much as FC's approach of using the "flippers" to do the job. It's just that the yield being taken by UWs on say AC or TC wasn't visible but it was still substantial.

Thank you yangmills for this detailed analysis.

I confess I do not understand your arguments in full (and some of them not even in part!) but I do not doubt your analysis which reads like a learned paper to economics students at a high level of proficiency. I have a background in mathematics and believe (possibly naively) that, given enough time and study of the necessary theory, I could properly understand the full detail.

However: it seems to me that one of the main points is that the 'par' interest rate should rightly increase as a loan proceeds (in my layman's terms: the 'risk' increases with time). Mine is a very simplistic analysis of just a part of your post. However, it ties in nicely with many investors' opinions that one should sell early in order to mitigate risk and presumably is one of the reasons GeorgeT has liked your post as his entire investment strategy could be have easily been based upon that part of your conclusions.

Even those investors who do their due diligence to the best of their ability agree that selling pre-term mitigates the risk and almost nobody on this forum denies doing it. There are a few who will say 'I'll keep this one to term' but these incidences are few and far between.

My conclusion: the general consensus of investors seems to bear out those parts of your analysis which I have attempted to simplify above. It will take a while for me to think about some of the deeper stuff!

EDIT: Crossed with david42 who makes valid points but I think misses (see EDIT2, below) one of the important conclusions of yangmills : The risk and 'par' rate should increase over time. It doesn't matter if we cannot calculate that rate; it should still increase. If we're 'just about happy' to invest in PBLxyz at 12% with 365 days remaining term then we should probably not be happy to invest in the same loan with only 31 days remaining term.

EDIT2: david42 doesn't miss the point - sorry, that was wrong of me to suggest (I read his post again). However, the fact that we cannot properly estimate the correct rate/risk is used as an excuse to ignore that it really changes over time in order to keep things 'simple'. Effectively, there are market forces which should dictate values on the SM but, for simplicity we should not allow them to do so.

Sadly, this seems to be the case more often that not. I once had to spend 3 months telling HMRC their own rules and sending them proof that their own rules were being followed with regards to VAT on digital products before they conceded that I was correct.

Take what HMRC say as rough guidance and then do your own research.

Yes... This is true of any investment, I'd go as far to say that this is a characteristic that should be ensured in any market.

Sounds a bit like the deluded punter who spends hours pouring over the Sporting Life and thinks he can beat the bookies because he knows who the horse's trainer is,what the horse eats for breakfast and what sort of ground it prefers.

Your statement is factually incorrect as evidenced by all sorts of investments and circumstances. Don't think the expert bankers did very well in 2007 and 2008 did they?

Plenty of expert bankers did extremely well in 2007 and 2008.

Don't think that having the interests of shareholders and staff misaligned (ie getting paid a big bonus for selling a duff loan you knew would go pop down the line) is the same thing as not knowing what you are doing.