james
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Post by james on Apr 6, 2014 8:43:38 GMT
Thanks. Does Funding Circle give their reasoning for that belief? Do they also say that selling below par does not give rise to a capital loss? There are situations in which certain types of trading might cause capital transactions to become income transactions taxable as income tax instead of CGT - a sole trader developer who repeatedly buys, upgrades and sells homes can become one such case. Is that what FC says applies? Or are they saying it's completely tax free? Does FC say there is no need to report them as CGT transactions?
I tried asking HMRC but an inspector wasn't available when I called. I intend to try again and try to get answers about all of the raised CGT issues.
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andy2001
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Post by andy2001 on Apr 6, 2014 16:56:42 GMT
support.fundingcircle.com/categories/20073411-FAQs-for-Investors/search?utf8=%E2%9C%93&query=capital+gain&for_search=1&commit=Search
"Taxation on sales of loan parts for a premium or discount
•Some investors may choose to redeem their loan parts before the maturity date by transferring their loan parts to other investors. At Funding Circle, the way we do this is to effectively replace the original investor by a new investor on terms that remain consistent for the borrower. However, between the original and the new investor, profits and losses can arise.
•Our understanding is that no Funding Circle loan is structured as a “security” and nor is it a “debt on security”. Accordingly, any profits arising on the maturity or disposal of a loan should not be liable to income tax.
•Profits and losses arising on the disposal of loans where you are not the original investor would normally be taxable under the capital gains tax regime. However, due to the way that that “sales” are structured at Funding Circle, all loans, including replacement loans, are effectively treated as original loans for capital gains tax purposes. This means capital gains tax should not be payable on loan parts sold at a premium, and loss relief should not be available for loan parts sold at a discount.
•For further details from HMRC please click here and see the section on “Simple debts"."
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james
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Post by james on Apr 6, 2014 17:37:46 GMT
Thanks! That's very interesting and means I get to correct my view to a more favourable one for an original lender who sells at a profit, which appears not to be a taxable gain. Sale at a loss appears also to not be a chargeable loss, which is unfortunate for those who sell debts that they expect to default or just at a loss for some other reason. This means that most sales won't be taxable for CGT (and I assume also not for income tax but I'll ask HMRC to be sure). What this means is that for UK residents they could potentially make completely tax free profits if Bondora allowed selling at a sufficiently high price. At the moment such sales are only really practical without losing lots of interest when the loan is fairly near to the end of the term and the total interest payable is low. At that point the cost of the fees means it's not practical to make a profit from it because it would be necessary to sell at a sufficient discount to cover the cost of the 1.5% of capital owed fee paid by the buyer in addition to the 1.5% of capital owed fee charged to the seller. I do actually sell some loans before the end even though it means an interest loss because I think that the potential for early repayment means it can be better to take 3.5% tax free from the maximum allowed 5% above par sale price rather than holding out for say 28% taxable for the remaining term with the risk of early settlement or default. Funding Circle says that their loans aren't securities - which makes sense - and that they are "simple debts" which also makes sense. They link to a HMRC document HS296.pdf which says (excluding a bit about loans to traders): " How are debts dealt with for Capital Gains Tax purposes?
Simple debts
A simple debt is a straightforward loan or amount owing by one person to another. Simple debts are not chargeable assets in the hands of the original lender. But you may be able to claim a loss if a loan you have made to a trader cannot be repaid. ...
It is possible to buy debts. A debt will be a chargeable asset if you are not the original lender. But a loss on the disposal of a simple debt, by a person
who is not the original lender, may not be allowable for Capital Gains Tax purposes. Ask us or your tax adviser for details." So I'll seek confirmation of this with HMRC and also asks them what happens for buy then sale situations, something I've done from time to time to try to make a profit from the pair of transactions. I'll also see what they say about the sale fee - can that be deducted from anything when a simple loan is being sold or not? |
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james
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Post by james on Apr 11, 2014 4:17:35 GMT
I just did initial calculations for me for 2013-14. Here's a summary, pretending that my income was £1000: Daily from ECB (XML from right column link): £1000 Monthly from HMRC: £999.72 Annual from HMRC (to 31.03.14): £1034.22 For previous tax year (only five months of income): Daily: not calculated Monthly: £1000 Annual: £957.14 My income in March was almost 8 times what it was in the previous May so it's very non-uniform, with a rapid increase towards the end of the year. This is why the annual is so different from monthly and daily, it would be closer if my income had been more consistent. If you are a UK person preparing a tax return quickly now and don't want to build a more complicated spreadsheet to do the calculations or wait for Bondora, these numbers imply that for this year only: If your income is up to £30 the annual rate is quite likely to be good enough because the difference in income is only about £1 at that level or £1.25 for my previous year. Up to maybe £100 if your income is more even than mine. Up to £300 or so if you are using a paper tax return and rounding the number down to the next lowest £10. If your income is up to £3,000 the monthly rates are quite likely to be good enough because the error in income would have been only £0.85 for me. For a higher rate tax payer the error in tax due from monthly calculation may be less than a Pound up to an annual income of about £8000. But do use caution with those numbers because they are based on my own very non-uniform income pattern and the quite small exchange rate variations this year. |
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james
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Post by james on Jan 9, 2015 12:46:54 GMT
Just a reply to make this current since we're in tax return deadline season at the moment.
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jo
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Post by jo on Jan 10, 2015 17:45:11 GMT
I speak as a former civil engineer and wonder whether this is all being over-engineered +1 It's unlikely they care too much - unless you're a serious playah. If not, you're (imo) wasting your life minutes.
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