stevio
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Post by stevio on Apr 4, 2017 8:56:08 GMT
Copied from email sent to all FS investors:
With the new tax year fast approaching we would like to clarify the position regarding defaulted loans as they may have an effect on investors' tax liabilities.
In accordance with current HMRC requirements, we do not withhold tax. Interest is paid gross to all investors. It remains the responsibility of each investor to report and pay appropriate taxes, such as income tax, capital-gains tax, corporation tax, etc.
The following links may help investors who are individuals with their own assessment:
HMRC General guidance on peer-to-peer lending
HMRC notes on Income tax relief
A summary of the guidance we have received for individuals is set out below:
Lenders may offset default losses against interest received.
Subsequent recoveries will be taxable in the year received.
Losses may be offset against interest received from all platforms.
Relief applies on losses incurred from 6 April 2015 (note: the key date is when the loan was put into default, not when the investment was made)
Losses may be carried forward for up to 4 years
Special rules apply to trusts, partnerships and pensions. Again, tax advice should be sought.
For companies, the above rules do not apply. However, they may be able to utilise reliefs under Corporation Tax. Members should seek tax advice.
We are not able to provide specific tax advice for investors but we do provide a tax statement that may help in the process - downloadable from our website for each registered investor.
This (updated) statement provides the following information for any given tax year
Gross Interest Earned
Capital losses from defaulted loans
Capital recovered from defaulted loans
2016/2017 will be added after 5th April, alternate dates can be selected as needed.
In line with HMRC guidelines we assess loans according to the following procedures:
Defaulted Loans
If we believe there is no chance that a borrower will renew or repay a loan it is put into default, marked as "unredeemed". This would occur if the borrower fails to respond to emails / phone calls, if the borrower confirms their inability to repay, if they have been placed into receivership, administration or bankruptcy, or where they have failed to provide supporting documentation/proof-of-funds.
This applies to both asset-based and property-based loans. In the case of asset-based loans, we are legally obliged to give a 14 day notice period before defaulting the loan.
Please note that a loan categorised as unredeemed does not mean that you have lost the funds - as the loan has not been completed. It will therefore not show on your "Account Information" page as "Capital Loss".
Late Loans
If we believe that the borrower will repay or renew the loan, we will not place the loan into default. This may occur when the borrower has provided evidence of payment, such as proof of refinancing, proof of sale etc.
If the loan is late, but not formally defaulted, we would, in any event, investigate alternative recovery options (auction sale, appointing receivers etc) in readiness if the expected funds are not received and we do default the loan.
NOTE: we are in the process of reviewing a number of late loans and will make decisions as to whether to default them shortly, before the end of the current tax year.
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stevio
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Post by stevio on Apr 4, 2017 8:59:19 GMT
Well done fundingsecure This has come very late in the tax year to effect tax planning before the end of this tax year, but wondering if people have been using the offset of default losses against interest received so far and/or if they will now (this platform and others)? I think most have been taking the cautious approach, but if the platform itself is saying we can, this might be the time to |
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markdirac
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Post by markdirac on Apr 4, 2017 10:51:06 GMT
I suggest not too late at all. None of this needs to be decided before 5th April. It only needs to be decided before your self assessment submission, ie. Jan 2018.
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mikes1531
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Post by mikes1531 on Apr 4, 2017 14:01:53 GMT
I suggest not too late at all. None of this needs to be decided before 5th April. It only needs to be decided before your self assessment submission, ie. Jan 2018. : While it's not too late to put into our SA tax returns, it is too late to be used for planning other tax-related manoeuvres that someone might choose to make if they knew just how much income they have to report for the year. (e.g. making VCT or EIS investments, or charitable donations) Also, while SA returns don't have to be submitted until Jan.'18, many people do like to deal with them as soon as they can so that they know well in advance just how much tax they owe. And if they've already overpaid, then the sooner they submit their return, the sooner they'll receive their money back.
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stevio
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Post by stevio on Apr 4, 2017 14:22:18 GMT
I suggest not too late at all. None of this needs to be decided before 5th April. It only needs to be decided before your self assessment submission, ie. Jan 2018. : While it's not too late to put into our SA tax returns, it is too late to be used for planning other tax-related manoeuvres that someone might choose to make if they knew just how much income they have to report for the year. (e.g. making VCT or EIS investments, or charitable donations) Also, while SA returns don't have to be submitted until Jan.'18, many people do like to deal with them as soon as they can so that they know well in advance just how much tax they owe. And if they've already overpaid, then the sooner they submit their return, the sooner they'll receive their money back. As well as those Mike mentions - pensions, dividends, salaries....level of tax can all be affected by level of savings income. Having spent the last 1.5 days on this, I am more than aware they all need to be done prior to midnight on 5th Apr (tomorrow!)       
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duck
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Post by duck on Apr 4, 2017 15:08:27 GMT
Well I have received a small handful of Emails containing The status on one of your investments has been changed to "Unredeemed", meaning it has been formally defaulted as we have determined the loan to be "irrecoverable" in accordance with SAIM 12050. This means that it is eligible to be offset against interest earned for income tax purposes. I would like to commend fundingsecure for taking this approach, I wish other platforms would take a similar pragmatic approach. |
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stevio
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Post by stevio on Apr 11, 2017 5:30:08 GMT
fundingsecureI presume the amounts of interest, irrecoverable loans and recovered loans doesn't change once a tax year has ended and any subsequently recovered loans are added to the next tax year statement?
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duck
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Post by duck on Apr 11, 2017 8:43:51 GMT
fundingsecure I presume the amounts of interest, irrecoverable loans and recovered loans doesn't change once a tax year has ended and any subsequently recovered loans are added to the next tax year statement? My view of the situation (having read and reread all the HMRC documentation) is that if you decide to make a claim and you state the claim is based on the position at 05/04/17 any changes are sorted by adjustments at the end of this tax year. That is what I am doing and what I am applying to claims that I made (on other platforms) for the 15/16 tax year. One of my eligible loans on FS may well repay before I put my tax return in, so be it, the claim will be adjusted at the end of this tax year as per the guidance.
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merlin
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Post by merlin on Apr 11, 2017 17:05:00 GMT
My FS Tax Statement is really exciting it shows that I lost £14 more than the interest I have earned. Not bad considering I have on average had a very significant five figure sum invested for the last year! I am well aware that many of the "losses" are likely to be recovered but that means I will be pilling up problems for the next tax year. My accountant is going to love this and no doubt will up my bill for all the extra work she will have to do.
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Post by bonfemme on Apr 12, 2017 5:52:26 GMT
My FS Tax Statement is really exciting it shows that I lost £14 more than the interest I have earned. Not bad considering I have on average had a very significant five figure sum invested for the last year! I am well aware that many of the "losses" are likely to be recovered but that means I will be pilling up problems for the next tax year. My accountant is going to love this and no doubt will up my bill for all the extra work she will have to do. Huh, is that all? My losses were £89.43 more. That's a platform first for me in seven years of investing.
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ashtondav
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Post by ashtondav on Apr 12, 2017 11:49:46 GMT
So what went wrong? Not a broad enough spread of loans? Just bad luck? Poor loan choice?
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tomtom
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Post by tomtom on Apr 12, 2017 12:29:42 GMT
fundingsecure I presume the amounts of interest, irrecoverable loans and recovered loans doesn't change once a tax year has ended and any subsequently recovered loans are added to the next tax year statement? My view of the situation (having read and reread all the HMRC documentation) is that if you decide to make a claim and you state the claim is based on the position at 05/04/17 any changes are sorted by adjustments at the end of this tax year. That is what I am doing and what I am applying to claims that I made (on other platforms) for the 15/16 tax year. One of my eligible loans on FS may well repay before I put my tax return in, so be it, the claim will be adjusted at the end of this tax year as per the guidance. I see that FS have stated that telford loan is in default at end of tax year, but this is because FS agreed that laon would not be repayed untill beginning of new tax year at request of lender so why is the loan being shown as defaulted? I am not sure how HMRS will look at this default.
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mikes1531
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Post by mikes1531 on Apr 12, 2017 17:16:12 GMT
So what went wrong? Not a broad enough spread of loans? Just bad luck? Poor loan choice? I don't think anything went 'wrong' on the investment planning side. IMHO, what's wrong is the way the HMRC guidance was written. The problem is that if a loan is put into a recovery situation -- e.g. LPA receivers are called in -- then the whole of that loan is declared a loss at that time. So if someone has a portfolio of ten equal-sized loans, and one of them has receivers appointed, then there's a loss declared that's 10% of the portfolio value. If the loans all are secured, then there ought to be a good chance that by the time the receivers have sold the property most, if not all, of the investor's capital would be returned to them, but that doesn't go into the loss declaration. Instead, all capital from that loan returned in a subsequent year would be treated as income to the investor. The net effect of the HMRC guidelines as FS have applied them is to defer income to be reported -- and the tax due on it -- from earlier years into later years. ISTM that generally would be considered to be a good thing by most investors. The main group who might not like it would be those who expect their marginal tax rate to be higher in the future than it is now.
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duck
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Post by duck on Apr 12, 2017 19:24:31 GMT
...... The net effect of the HMRC guidelines as FS have applied them is to defer income to be reported -- and the tax due on it -- from earlier years into later years. ISTM that generally would be considered to be a good thing by most investors. The main group who might not like it would be those who expect their marginal tax rate to be higher in the future than it is now. I agree nothing went wrong but what is being presented is an 'opportunity' to claim relief, you don't have to if you don't want to! If you find yourself in the bizarre position of having more 'losses' than income you can carry the excess losses forwards to the following tax year (carry forwards max of 4 years from the loss) - SAIM12140. As somebody who keeps a running total of income and relates it to my tax allowance this presents a new challenge since I need to anticipate which of the 'deemed to be irrecoverable' loans will repay and add that into my projected income for the following year. My adjustment for 16/17 was £143. If you work to either stay out of tax or avoid going up a tax band I anticipate that it will be sensible to keep a running total of new loans that you may be claiming for and payments made on claimed loans that have paid back.
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stevio
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Post by stevio on Apr 12, 2017 22:28:05 GMT
So what went wrong? Not a broad enough spread of loans? Just bad luck? Poor loan choice? I don't think anything went 'wrong' on the investment planning side. IMHO, what's wrong is the way the HMRC guidance was written. The problem is that if a loan is put into a recovery situation -- e.g. LPA receivers are called in -- then the whole of that loan is declared a loss at that time. So if someone has a portfolio of ten equal-sized loans, and one of them has receivers appointed, then there's a loss declared that's 10% of the portfolio value. If the loans all are secured, then there ought to be a good chance that by the time the receivers have sold the property most, if not all, of the investor's capital would be returned to them, but that doesn't go into the loss declaration. Instead, all capital from that loan returned in a subsequent year would be treated as income to the investor. The net effect of the HMRC guidelines as FS have applied them is to defer income to be reported -- and the tax due on it -- from earlier years into later years. ISTM that generally would be considered to be a good thing by most investors. The main group who might not like it would be those who expect their marginal tax rate to be higher in the future than it is now. Deffered income is quite saught after! Gives you another chance to use tax allowances, rearrange your affairs in anticipation (eg VCTs etc if missed out previously).
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