hazellend
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Post by hazellend on May 21, 2017 13:50:13 GMT
I've been musing over ISAs for P2P and have come to the conclusion that for some it will not add up.
1) If you are a lower rate earner, you will get 1 k tax free anyway
2) If you are a non tax payer, you will also get your 5k starting allowance
3) If your loan defaults, you miss out on the tax offset against your income
4) As per point 3, if you are a higher rate tax payer, you are missing out of £400 / £1000 defaulted . 3) and 4) will not be available in an ISA
5) ISAs make a lot of sense to me for equities, where the best strategy is buy and hold forever with no messing around, and the risk of total loss with an ETF/Fund is negligible. With equities, tax returns can quickly become a pain the backside trying to work out capital gains, dividends, and buying and selling outside of an ISA to tax harvest gains and losses. These are not so much of an issue with taxable income from P2P.
So we will be using our ISAs for equities but will not be investing in any P2P ISAs.
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ben
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Post by ben on May 21, 2017 13:59:01 GMT
Of all the big sites that have released an ISA the rates have gone down. I can see the other sites going that way with to much money chasing to few loans.
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dzo
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Post by dzo on May 21, 2017 14:39:28 GMT
I've been musing over ISAs for P2P and have come to the conclusion that for some it will not add up. 1) If you are a lower rate earner, you will get 1 k tax free anyway 2) If you are a non tax payer, you will also get your 5k starting allowance 3) If your loan defaults, you miss out on the tax offset against your income 4) As per point 3, if you are a higher rate tax payer, you are missing out of £400 / £1000 defaulted . 3) and 4) will not be available in an ISA 5) ISAs make a lot of sense to me for equities, where the best strategy is buy and hold forever with no messing around, and the risk of total loss with an ETF/Fund is negligible. With equities, tax returns can quickly become a pain the backside trying to work out capital gains, dividends, and buying and selling outside of an ISA to tax harvest gains and losses. These are not so much of an issue with taxable income from P2P. So we will be using our ISAs for equities but will not be investing in any P2P ISAs. The tax relief on defaults is offset against tax you are paying on P2P income so you don't lose it in an ISA - you get it even when the loan doesn't default.
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archie
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Post by archie on May 21, 2017 15:25:16 GMT
The tax relief on defaults is offset against tax you are paying on P2P income so you don't lose it in an ISA - you get it even when the loan doesn't default. I don't believe that's true, losses inside an ISA aren't allowable against external gains. Happy to be proved wrong though  Should work the same as capital gains tax in a Shares ISA, capital losses cannot be offset.
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dzo
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Post by dzo on May 21, 2017 16:44:00 GMT
The tax relief on defaults is offset against tax you are paying on P2P income so you don't lose it in an ISA - you get it even when the loan doesn't default. I don't believe that's true, losses inside an ISA aren't allowable against external gains. Happy to be proved wrong though Should work the same as capital gains tax in a Shares ISA, capital losses cannot be offset. That's what I mean. You don't lose anything by having your P2P investment in an ISA because you never pay the initial tax to begin with.
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stevio
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Post by stevio on May 21, 2017 17:46:14 GMT
I don't believe that's true, losses inside an ISA aren't allowable against external gains. Happy to be proved wrong though Should work the same as capital gains tax in a Shares ISA, capital losses cannot be offset. That's what I mean. You don't lose anything by having your P2P investment in an ISA because you never pay the initial tax to begin with. That would be true if it was just the tax claimable against losses, but as I understand, it is the capital loss that can be claimed
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macq
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Post by macq on May 21, 2017 18:29:40 GMT
Most experts say that any ISA allowance already used in any year is unlikely to be taken away by a future government if they change the rules but the £1000 tax free could be.So it may pay to use the ISA first.
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Greenwood2
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Post by Greenwood2 on May 21, 2017 20:09:00 GMT
I initially thought a P2P ISA would be great, but i'm not so sure now. I see possible problems transferring in, and time wasted getting loans into the ISA, possible problems getting out (plus potential charges) if you change your mind about a platform, loans maturing at different times if you want to move funds. ISA fees, possible lower rates on ISAs. Plus those listed in the first post. Plus all the usual worries about platforms, rates going down, defaults going up, platforms going bust. At present I prefer to be a bit nimble in getting in and out of platforms, so I think I will wait until all becomes much clearer.
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IFISAcava
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Post by IFISAcava on May 21, 2017 21:24:36 GMT
For higher/additional tax payers, all of the above is massively outweighed by the 40/45% tax savings.
The lack of offset of losses is I think more of a technical issue and a bit of a red herring; even a big capital loss wont come close to negating that tax saving (assuming you are suitably diversified - and if you're not then you're in trouble whether inside or outside of an ISA)
Fees are a bigger issue I think - some platforms are charging higher fees on ISAs that could take away a lot of the tax saving v a non-ISA p2p offering.
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IFISAcava
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Post by IFISAcava on May 21, 2017 21:26:46 GMT
I've been musing over ISAs for P2P and have come to the conclusion that for some it will not add up. 1) If you are a lower rate earner, you will get 1 k tax free anyway 2) If you are a non tax payer, you will also get your 5k starting allowance 3) If your loan defaults, you miss out on the tax offset against your income 4) As per point 3, if you are a higher rate tax payer, you are missing out of £400 / £1000 defaulted . 3) and 4) will not be available in an ISA 5) ISAs make a lot of sense to me for equities, where the best strategy is buy and hold forever with no messing around, and the risk of total loss with an ETF/Fund is negligible. With equities, tax returns can quickly become a pain the backside trying to work out capital gains, dividends, and buying and selling outside of an ISA to tax harvest gains and losses. These are not so much of an issue with taxable income from P2P. So we will be using our ISAs for equities but will not be investing in any P2P ISAs. not really - you're saving £600 in tax rather than £1000.
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Post by gidoppp01 on May 22, 2017 6:14:31 GMT
Well, I am not a fan of IFISA. Simply because I p2p is more about diversification. Having one provider doesn't work in ISA because of current ISA regulations not allowing to have multiple IFISA accounts nor subscribe to different IFISA accounts in the same tax year.
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archie
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Post by archie on May 22, 2017 6:41:13 GMT
Well, I am not a fan of IFISA. Simply because I p2p is more about diversification. Having one provider doesn't work in ISA because of current ISA regulations not allowing to have multiple IFISA accounts nor subscribe to different IFISA accounts in the same tax year. You can open more than one IFISA but only subscribe new money to one. As long as you transfer money from existing ISAs you could have multiple sites covered if you wanted to.
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IFISAcava
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Post by IFISAcava on May 22, 2017 18:22:01 GMT
Well, I am not a fan of IFISA. Simply because I p2p is more about diversification. Having one provider doesn't work in ISA because of current ISA regulations not allowing to have multiple IFISA accounts nor subscribe to different IFISA accounts in the same tax year. You can open more than one IFISA but only subscribe new money to one. As long as you transfer money from existing ISAs you could have multiple sites covered if you wanted to. Precisely: I have 9 IFISAs. Main issue is that my favourite platforms don't have them yet. Then again that makes me EVEN MORE diversified (by platform anyway).
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stevio
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Post by stevio on May 22, 2017 18:55:54 GMT
For higher/additional tax payers, all of the above is massively outweighed by the 40/45% tax savings. The lack of offset of losses is I think more of a technical issue and a bit of a red herring; even a big capital loss wont come close to negating that tax saving (assuming you are suitably diversified - and if you're not then you're in trouble whether inside or outside of an ISA) Fees are a bigger issue I think - some platforms are charging higher fees on ISAs that could take away a lot of the tax saving v a non-ISA p2p offering. The 40% tax saving is only on the interest, which in itself is a % of the capital. So £1000 capital at 10% interest is £100, tax saving 40% on £100 interest is £40 or 4% of the capital Where as a capital loss is a % of the capital and could easily exceed 4%
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mason
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Post by mason on May 22, 2017 20:28:51 GMT
That's what I mean. You don't lose anything by having your P2P investment in an ISA because you never pay the initial tax to begin with. Quite right. There seems to be a misunderstanding that putting investments inside an ISA results in the loss of a valuable tax relief from being able to utilise losses. Investments within an ISA are tax free. That means that no tax at all is paid on gains/interest. In other words, your effective rate of tax is zero. For unwrapped to be better, the effective rate of tax would therefore need to be negative. That doesn't happen with CGT relief or tax relief on P2P interest. If your losses are larger than your gains, you pay no tax (just like in an ISA), and if you subsequently make gains that lead you to break even, then you pay no tax up to that point (just like in an ISA). Beyond breakeven, your interest/gains are taxable (unlike in an ISA). So holding these investments unwrapped is at best equivalent to doing so within an ISA, but with the added annoyance of record keeping and reporting to HMRC. Where things do get a bit more uncertain is when you hold some investments wrapped and some unwrapped. If you make a net loss within your ISA and a net gain in your unwrapped investments, you would have been better off not having the ISA. Therefore it is best to use the ISA preferentially for investments less likely to suffer a capital loss.
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