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Post by spiker on May 6, 2017 7:40:37 GMT
If I buy a £20 loan part at 12% interest, and I place for sale at 2% premium on the secondary market.
If someone buys this on the day before the first payment is due. there is obviously:
1) accrued interest for the 29 days which is approx 1% (12% /12 months) of £20 i.e. 20p
2) 2% premium fee of £20 (40p)
So the buyer pays me: £20.60
What am I actually taxable for in terms of income tax/capital gains tax from the 60p profit?
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treeman
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Post by treeman on May 6, 2017 9:54:33 GMT
If I buy a £20 loan part at 12% interest, and I place for sale at 2% premium on the secondary market. If someone buys this on the day before the first payment is due. there is obviously: 1) accrued interest for the 29 days which is approx 1% (12% /12 months) of £20 i.e. 20p 2) 2% premium fee of £20 (40p) So the buyer pays me: £20.60 What am I actually taxable for in terms of income tax/capital gains tax from the 60p profit? Not forgetting you'll pay the Sales Fee of 0.25% (£0.05 on £20) ....... so your proceeds will be £20.55. Subtracting your returned capital your profit is 55p, which is the sum that will end up as (taxable) 'income' on your FC Tax statement at year end.
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Post by spiker on May 6, 2017 13:00:54 GMT
I don't think that is correct.
i.e. If I go the 'View tax statement' and select the range to cover 1 day. I can see:
'Income payments made to you: £x.xx'
If I then go to the 'View transaction statements' and look at the data for the day (above)
I can see the x.xx from the tax statement corresponds directly to the sum of the interest's for that day on the transaction statement. (i.e. The premium/delta amount is omitted from the tax statement along with the 0.25% selling fee')
So in the example I stated previously (for the £20 loan part), I believe the tax statement would read:
'Income payments made to you: £0.20'
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SteveT
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Post by SteveT on May 6, 2017 13:06:18 GMT
For an individual lender, interest earned (net of fees and bad debts less recoveries) is taxable as income. Premiums / discounts are taxable as capital gain / loss.
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Post by spiker on May 6, 2017 13:09:53 GMT
'interest earned (net of fees and bad debts less recoveries) is taxable as income. Premiums / discounts are taxable as capital gain / loss.'
hmmmmm, so why then is FC's 0.25% 'selling' fee not taken into account on the tax statement? (Only the 'servicing' fee is listed on the tax statement).
Also I thought I read previously that there was debate (including directly from FC) on whether premiums should be liable for capital gains tax? (If they are liable, FC don't make life easy as they don't include this data on the tax statement).
Using the previous example of buying a £20 loan part at 12% interest, and selling for 2% premium the day before the first repayment is due:
1) I presume the FC tax statement is correct and as stated earlier I am liable to pay income tax on the 20p interest gained during the month.
2) However I guess (needs clarified) I should also be liable for paying capital gains tax on the premium minus the sell fee? Therefore owing 40p (2% premium) - 5p (0/25% sell fee) = 35p capital gains tax
If this is the case why do FC not add the premium / sell fee's to the report?
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SteveT
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Post by SteveT on May 6, 2017 13:22:05 GMT
It's no different to calculating the capital gain on selling, say, a second home. It's the net sale proceeds (after selling costs) that count. You cannot offset estate agent and solicitors fees against your income tax.
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Post by spiker on May 6, 2017 13:26:10 GMT
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SteveT
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Post by SteveT on May 6, 2017 13:44:00 GMT
Well it's your call but, if I'd sold enough FC loanparts at a premium to push me over my Capital Gains allowance, I wouldn't be hanging my hat on that less-than-definitive advice.
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Post by spiker on May 6, 2017 13:56:42 GMT
True, Its a bit of a mute point for those who have no other CGT interests outside FC
To use up the 11,300 CGT allowance you'd have to sell 28,250 £20 loan parts at 2% premium within a year.
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fasty
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Post by fasty on May 6, 2017 14:12:18 GMT
So, do I presume that the amount shown by FC as "Income payments made to you" does NOT include amounts obtained by selling loan parts at a premium?
(Otherwise I have on several occasions paid tax on amounts that I could have offset against my CGT allowance)
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Post by spiker on May 6, 2017 14:42:45 GMT
So, do I presume that the amount shown by FC as "Income payments made to you" does NOT include amounts obtained by selling loan parts at a premium? The "Income payments made to you" appears to include the "accrued" interest from any loan parts you sell at a premium. (But not the actual premium or the sell fee) I think FC in the past used to have a separate CGT section on the tax statement, but this looks now to be totally removed.
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acky
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Post by acky on May 8, 2017 7:18:46 GMT
On another platform I've seen it said that a premium or discount on the sale of a part you buy from new is not within the scope of capital gains tax, but that a premium or discount on the sale of a part you buy on the secondary market IS within the scope of capital gains tax. I've seen advice on-line from accountancy firms that says that a loan is generally not a chargeable asset and therefore when loans are bought and sold any profit or loss should be exempt from CGT altogether. Presumably if you bought and sold a huge volume, you'd be considered to be trading, and your profits would be subject to income tax. There seems to be a lot of different opinions and considerable lack of clarity. HMRC don't seem to have issued any guidance on the CGT aspect, although they have issued guidance on the taxation of interest and bad debt relief.
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r00lish67
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Post by r00lish67 on Nov 6, 2017 13:07:49 GMT
I had a similar uncertainty over on FS.
My understanding from the HMRC doc "SAIM 12200 Subsequent recoveries of peer to peer loans " is that this depends on whether you recognised the default in the year it was incurred.
Extract (my bold):
"If relief has been claimed because the principal of a loan has been treated as becoming irrecoverable, but the lender subsequently recovers any or all of the principal of the loan, then the lender should treat any amount received as peer to peer (P2P) interest received at the time of the recovery"
So, if you did receive bad debt relief by virtue of the defaulted loss amount being deducted from your interest received in the affected tax year, then you should just add the recovery to your return as if it was new interest received, as you suggest.
If you didn't, then I don't believe you would be under obligation to include the recovery figure in your return.
This applies to your £15.78. I'm less sure about your 56p. That sounds to me like it should be effectively disregarded given that you wouldn't have had the tax relief in the affected year and so shouldn't be penalised (in effect) by receiving a recovery later.
I would appreciate knowing if others have interpreted the doc the same way too.
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fasty
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Post by fasty on Nov 6, 2017 13:17:40 GMT
I had a similar uncertainty over on FS. My understanding from the HMRC doc "SAIM 12200 Subsequent recoveries of peer to peer loans " is that this depends on whether you recognised the default in the year it was incurred. Extract (my bold): "If relief has been claimed because the principal of a loan has been treated as becoming irrecoverable, but the lender subsequently recovers any or all of the principal of the loan, then the lender should treat any amount received as peer to peer (P2P) interest received at the time of the recovery"So, if you did receive bad debt relief by virtue of the defaulted loss amount being deducted from your interest received in the affected tax year, then you should just add the recovery to your return as if it was new interest received, as you suggest. If you didn't, then I don't believe you would be under obligation to include the recovery figure in your return. This applies to your £15.78. I'm less sure about your 56p. That sounds to me like it should be effectively disregarded given that you wouldn't have had the tax relief in the affected year and so shouldn't be penalised (in effect) by receiving a recovery later. I would appreciate knowing if others have interpreted the doc the same way too. To me, that would seem a fair way of interpreting it. I shall be using the same understanding in my return.
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