Peer-to-peer lending sites: MSE guide discussion

masonic

jono1975 wrote: »

I am new to this and have invested £1000 with Ratesetter last month with their one year plan, I was inticed by the £100 new investor bonus. Interest due to be paid in 2020.

I am a basic rate tax payer and don't fill in self assesments. This year my tax code has been adjusted to claim untaxed interest as I've gone over my PSA.

My question is, do HMRC receive interest details from P2P in the same way as my savings accounts and adjust my tax code accordinly, without my need to fill in a self assessment.

Sorry if this has been asked before.

Supposedly yes, but in practice the information being received by HMRC even in respect of savings accounts is questionable. As always, if you have a tax liability, it is something you should inform HMRC about.

masonic

DireEmblem wrote: »

There seems a bit of negativity on this thread of late - I think P2P lending is great. I've been in Zopa almost from the start, and although I miss the safeguard, my returns after bad debt have always averaged above the 5% mark, which is pretty decent given the consistency.

As long as you'll still think P2P lending is great if you start to suffer capital losses, then there's nothing wrong about that. I'm happy to continue investing in P2P even though I've suffered some substantial losses - about a fifth of my capital is tied up in defaults so I don't know yet what my actual net return will be, but I suspect it will end up close to the 8% mark. However, past performance is no guide to the future and I'm fully prepared for the risk of future capital losses outstripping my returns.

Ok yes, so I could possibly earn more investing, but its good to diversify in terms of savings.

P2P lending accounts are certainly not equivalent to savings accounts. There is no need to diversify savings unless you hold more than £85k with one organisation.

In the case of P2P you are investing, not saving. P2P is a high risk investment with 100% loss potential and no FSCS cover even in situations where you are defrauded. The risk profile is different between S&S and P2P. S&S investments are highly volatile and can fall in value very quickly, whereas P2P loans are not as readily tradeable, so are not very volatile, but can be subject to irrecoverable losses in a way that mainstream S&S investing is not.

jamesd

masonic wrote: »

The whole Kuflink subscription is invalid because it is the second IFISA Nardge has subscribed to in the 2018/19 tax year (technically the fourth, but the other two were flexible and subscriptions were flexibly withdrawn). So the funds will likely be removed during repair and lead to some unused allowance in the 2018/19 tax year.

Invalid but repairable so long as the £20,000 limit hasn't been exceeded, as HMRC says in the Guidance Notes for ISA Managers page I linked to in my last post:

"In general, the invalid subscriptions can be repaired as long as the total subscriptions in the tax year do not exceed the overall subscription limit"

Adding more money to the Ratesetter ISA would be a substantial mistake because:

"All investments in a repairable ISA lose their tax exemption from the date of the first invalid subscription up to the date of repair. Up to this date the repairable ISA is effectively treated in the same way as a void ISA."

At the moment it's just the Kuflink account that isn't getting ISA tax relief but adding more money to Ratesetter would do that to the whole Ratesetter balance as well, unless HMRC chooses not to. The partial voiding for excess subscription has a comparable effect to the repairable one and it's partial voiding that seems applicable.

jamesd

DireEmblem wrote: »

I've been in Zopa almost from the start... Ok yes, so I could possibly earn more investing, but its good to diversify in terms of savings.

Zopa and other P2P are investments without even the FSCS protection against fraud and theft losses that other common investments have.

Capital volatility of P2P values varies depending on the platform but I don't know of any with variable secondary market prices that reports the mark to current secondary market prices as the value as a bond fund would. So in general the volatility just isn't reported to you.

On Zopa the capital value falls when interest rates rise but Zopa only tells you if you ask for a sale quote. The price rises after a rate drop but Zopa keeps the increase.

On platforms with user controllable secondary market prices I've bought and sold at discounts of 25% at Ablrate, the maximum they permit; have sold down to 25% at Huddle to exit a loan, also their limit; have sold at greater discounts at Bondora; have bought and sold at premiums.

On platforms without variable pricing liquidity changes instead of price and it reduces for loans perceived as having difficulties even on variable pricing platforms, notably those with a price floor insufficient for the anticipated loss..

Nardge

jamesd wrote: »

Invalid but repairable so long as the £20,000 limit hasn't been exceeded, as HMRC says in the Guidance Notes for ISA Managers page I linked to in my last post:

"In general, the invalid subscriptions can be repaired as long as the total subscriptions in the tax year do not exceed the overall subscription limit"

Adding more money to the Ratesetter ISA would be a substantial mistake because:

"All investments in a repairable ISA lose their tax exemption from the date of the first invalid subscription up to the date of repair. Up to this date the repairable ISA is effectively treated in the same way as a void ISA."

At the moment it's just the Kuflink account that isn't getting ISA tax relief but adding more money to Ratesetter would do that to the whole Ratesetter balance as well, unless HMRC chooses not to. The partial voiding for excess subscription has a comparable effect to the repairable one and it's partial voiding that seems applicable.

Many thanks to you 'jamesd' and 'masonic' for trying to help me out

If I read you and Masonic correctly, the advice is to leave Kuflink as it is, and to NOT aim to compensate the £20,000 allowance as outlined and detailed by myself above. HMRC will correct Kuflink, and the Ratesetter will be left as it is.

What I wish to avoid is a trawled out headache with HMRC, so the option of paying Kuflink for reimbursement of my erroneous 'New' 2019/19 ISA Money remains...

For the tax year 'New' 2018/19 ISA I've:

Ratesetter - £13,051
Kuflink - £142.58 (the error, oversight)

Yet to be invested from the 'overall' 2018/19 £20,000 ISA allowance - £548

Therefore if to use only £405.42 of this, and outwith of IF ISA (£548 - £142.58), HMRC will leave Ratesetter and hopefully myself alone? Otherwise I feel I might as well pay Kuflink to rectify things beforehand for peace of mind.

With Kind regards

masonic

jamesd wrote: »

Invalid but repairable so long as the £20,000 limit hasn't been exceeded, as HMRC says in the Guidance Notes for ISA Managers page I linked to in my last post:

"In general, the invalid subscriptions can be repaired as long as the total subscriptions in the tax year do not exceed the overall subscription limit"

Yes, but isn't the way to repair an ISA breaching the invalid combination of ISAs rule to remove the subscriptions from the 2nd (or later) ISA of the same type? That is what the worked examples in the old ISA Guidance Notes document showed.

In this case the invalid subscriptions are the only subscriptions made to the ISA. Whether it is repaired or voided only makes a practical difference if the ISA also contains valid subscriptions from an earlier tax year.

Adding more money to the Ratesetter ISA would be a substantial mistake because:

"All investments in a repairable ISA lose their tax exemption from the date of the first invalid subscription up to the date of repair. Up to this date the repairable ISA is effectively treated in the same way as a void ISA."

At the moment it's just the Kuflink account that isn't getting ISA tax relief but adding more money to Ratesetter would do that to the whole Ratesetter balance as well, unless HMRC chooses not to. The partial voiding for excess subscription has a comparable effect to the repairable one and it's partial voiding that seems applicable.

Yes, this is a very good (further) reason not to oversubscribe to the Ratesetter ISA.

masonic

Nardge wrote: »

If I read you and Masonic correctly, the advice is to leave Kuflink as it is, and to NOT aim to compensate the £20,000 allowance as outlined and detailed by myself above? HMRC will correct Kuflink, and the Ratesetter will be left alone.

What I wish to avoid is a trawled out headache with HMRC, so the option of paying Kuflink for reimbursement of my 'New' 2019/19 ISA Money remains...

The Kuflink ISA is not flexible, so making a withdrawal will make no difference. It has a rather steep transfer out fee, so it will cost you more to transfer it in to a valid ISA than you can expect to suffer from HMRC's actions. So the wait and see approach is the only sensible one at this stage.

Nardge

masonic wrote: »

Yes, but isn't the way to repair an ISA breaching the invalid combination of ISAs rule to remove the subscriptions from the 2nd (or later) ISA of the same type? In this case the invalid subscriptions are the only subscriptions made to the ISA. That is what the worked examples in the old ISA Guidance Notes document showed. Whether it is repaired or voided only makes a practical difference if the ISA also contains valid subscriptions from an earlier tax year.


Yes, this is a very good (further) reason not to oversubscribe to the Ratesetter ISA.

For Clarity, my Kuflink account already had ISA money from previous 'old' tax years. The error was to invest the cashback and subsequent referral fee allied with the above into this 'New' tax year, rather than extracting it and diverting it elsewhere, for instance Ratesetter...

Does that change anything?

With Kind Regards

masonic

Nardge wrote: »

For Clarity, my Kuflink account already had ISA money from previous 'old' tax years. The error was to invest the cashback and subsequent referral fee allied with the above into this 'New' tax year, rather than extracting it and diverting it elsewhere, for instance Ratesetter...

Does that change anything?

Potentially it means income on the whole contents of the ISA may be taxable from the date the invalid payment was made until the date it is repaired by HMRC. It doesn't really make any difference to your options or suggested course of action.

jamesd

masonic wrote: »

Yes, but isn't the way to repair an ISA breaching the invalid combination of ISAs rule to remove the subscriptions from the 2nd (or later) ISA of the same type? That is what the worked examples in the old ISA Guidance Notes document showed.

Not according to the current version, so long as the total is still within the 20k. Go over and partial voiding can be used to remove the excess.

BTW there are special rules for the LISA: even if its subscription is later the money is taken from the earlier ISA instead.

Nardge wrote: »

Does that change anything?

Since you're still within the 20k just leave things as they are and the Kuflink subscription will be made valid. HMRC has been known to forgive minor errors with nothing more than a reminder about the rules or you just won't get tax free interest on the excess in Kuflink for a few months if they go the repair route instead, their choice to make.

You can safely add the 548 to Ratesetter with no issues. You could add it to Kuflink but that'd be more breaking of the rules and enough that you might go over the amount that HMRC will tolerate with no more than a reminder letter.