Peer-to-peer lending sites: MSE guide discussion

masonic

allegro120 said:

masonic said:

allegro120 said:

masonic said:

thenewcomer said:

masonic said:

I have dipped in and out of P2P over the last few years to make use of bad debt relief, of which I have accumulated a substantial amount from the likes of Ablrate, MoneyThing, Assetz Capital and FundingSecure. Kuflink is one of a handful of platforms I have used for this purpose, and I have been broadly happy with the way they have handled bad debt to date. I've not been tempted to generate interest beyond that which I could obtain tax free through the relief, although as it turns out, extensions to loan terms and penalty interest have pushed my income over that limit.

I will re-evaluate the situation when base rate finally starts to fall, as that is probably a time when the risk/reward will be at its best.

sorry if this is a silly question. what is a debt relief?

For P2P agreements held outside of an IF ISA, you can claim tax relief on irrecoverable loans so that you only pay tax on your net gains from P2P investing. Bad debt relief can only be offset against income from P2P lending, so to use it you must have income from P2P in the same or subsequent tax years.

How would you know that they are irrecoverable?  Did Ablrate administrators declare any of their loans irrecoverable or do you just use your own judgment to calculate the loss?

This is covered in SAIM12050. In practice some of the Ablrate loans were declared irrecoverable long before Ablrate itself got into trouble. The earliest such loans were those involving shipping containers that are still the subject of litigation 8 years later. It was normal practice among P2P platforms to declare loans irrecoverable once formal enforcement proceedings were initiated against the borrower (this in turn was usually many months after the loan entered default). Any capital or interest recovered through these proceedings would be taxable as P2P income in the year it was distributed.

So presumably at this stage of play you can declare the whole remaining Ablrate's loan book as irrecoverable and claim it against the income you get from Kuflink. Is  this how it works? 

If any loans are still performing, then they are not irrecoverable, regardless of Ablrate's status. There is a loan in my portfolio from 2019 that was in arrears, but it had been restructured so that the borrower could continue making some repayments at the time Ablrate entered administration. I don't think SAIM12050 permits me to declare this loan irrecoverable just because the platform is not currently in a position to make distributions to lenders. The administrators will need to step in and manage this. No doubt, after costs there will be nothing left, but I'm not at liberty to pre-judge the outcome. Needless to say, nothing within my Ablrate IFfy ISA would attract any relief, just as capital losses within a S&S ISA couldn't be offset against gains.

For loans that have previously been declared irrecoverable, yes I could claim loss relief against income I get from Kuflink, as an example. In future years I may recover some pennies in the pound from some of those loans previously deemed irrecoverable and that would be treated as taxable income.

allegro120

masonic said:

allegro120 said:

masonic said:

allegro120 said:

masonic said:

thenewcomer said:

masonic said:

I have dipped in and out of P2P over the last few years to make use of bad debt relief, of which I have accumulated a substantial amount from the likes of Ablrate, MoneyThing, Assetz Capital and FundingSecure. Kuflink is one of a handful of platforms I have used for this purpose, and I have been broadly happy with the way they have handled bad debt to date. I've not been tempted to generate interest beyond that which I could obtain tax free through the relief, although as it turns out, extensions to loan terms and penalty interest have pushed my income over that limit.

I will re-evaluate the situation when base rate finally starts to fall, as that is probably a time when the risk/reward will be at its best.

sorry if this is a silly question. what is a debt relief?

For P2P agreements held outside of an IF ISA, you can claim tax relief on irrecoverable loans so that you only pay tax on your net gains from P2P investing. Bad debt relief can only be offset against income from P2P lending, so to use it you must have income from P2P in the same or subsequent tax years.

How would you know that they are irrecoverable?  Did Ablrate administrators declare any of their loans irrecoverable or do you just use your own judgment to calculate the loss?

This is covered in SAIM12050. In practice some of the Ablrate loans were declared irrecoverable long before Ablrate itself got into trouble. The earliest such loans were those involving shipping containers that are still the subject of litigation 8 years later. It was normal practice among P2P platforms to declare loans irrecoverable once formal enforcement proceedings were initiated against the borrower (this in turn was usually many months after the loan entered default). Any capital or interest recovered through these proceedings would be taxable as P2P income in the year it was distributed.

So presumably at this stage of play you can declare the whole remaining Ablrate's loan book as irrecoverable and claim it against the income you get from Kuflink. Is  this how it works? 

If any loans are still performing, then they are not irrecoverable, regardless of Ablrate's status. There is a loan in my portfolio from 2019 that was in arrears, but it had been restructured so that the borrower could continue making some repayments at the time Ablrate entered administration. I don't think SAIM12050 permits me to declare this loan irrecoverable just because the platform is not currently in a position to make distributions to lenders. The administrators will need to step in and manage this. No doubt, after costs there will be nothing left, but I'm not at liberty to pre-judge the outcome. Needless to say, nothing within my Ablrate IFfy ISA would attract any relief, just as capital losses within a S&S ISA couldn't be offset against gains.

For loans that have previously been declared irrecoverable, yes I could claim loss relief against income I get from Kuflink, as an example. In future years I may recover some pennies in the pound from some of those loans previously deemed irrecoverable and that would be treated as taxable income.

I'm surprised that some of Ablrate's loans are still performing, I know that the remaining MoneyThing loan book is dead and you can't expect to receive any more interest payments from FundingSecure.  I can see how you can use this to reduce your tax on your income, but don't understand how you benefit from investing in bad debt.  You put your money into something you know is going to be a loss in order to mitigate the tax burden... I've heard people doing this but never understood how this technique can be profitable.

masonic

allegro120 said:

masonic said:

allegro120 said:

masonic said:

allegro120 said:

masonic said:

thenewcomer said:

masonic said:

I have dipped in and out of P2P over the last few years to make use of bad debt relief, of which I have accumulated a substantial amount from the likes of Ablrate, MoneyThing, Assetz Capital and FundingSecure. Kuflink is one of a handful of platforms I have used for this purpose, and I have been broadly happy with the way they have handled bad debt to date. I've not been tempted to generate interest beyond that which I could obtain tax free through the relief, although as it turns out, extensions to loan terms and penalty interest have pushed my income over that limit.

I will re-evaluate the situation when base rate finally starts to fall, as that is probably a time when the risk/reward will be at its best.

sorry if this is a silly question. what is a debt relief?

For P2P agreements held outside of an IF ISA, you can claim tax relief on irrecoverable loans so that you only pay tax on your net gains from P2P investing. Bad debt relief can only be offset against income from P2P lending, so to use it you must have income from P2P in the same or subsequent tax years.

How would you know that they are irrecoverable?  Did Ablrate administrators declare any of their loans irrecoverable or do you just use your own judgment to calculate the loss?

This is covered in SAIM12050. In practice some of the Ablrate loans were declared irrecoverable long before Ablrate itself got into trouble. The earliest such loans were those involving shipping containers that are still the subject of litigation 8 years later. It was normal practice among P2P platforms to declare loans irrecoverable once formal enforcement proceedings were initiated against the borrower (this in turn was usually many months after the loan entered default). Any capital or interest recovered through these proceedings would be taxable as P2P income in the year it was distributed.

So presumably at this stage of play you can declare the whole remaining Ablrate's loan book as irrecoverable and claim it against the income you get from Kuflink. Is  this how it works? 

If any loans are still performing, then they are not irrecoverable, regardless of Ablrate's status. There is a loan in my portfolio from 2019 that was in arrears, but it had been restructured so that the borrower could continue making some repayments at the time Ablrate entered administration. I don't think SAIM12050 permits me to declare this loan irrecoverable just because the platform is not currently in a position to make distributions to lenders. The administrators will need to step in and manage this. No doubt, after costs there will be nothing left, but I'm not at liberty to pre-judge the outcome. Needless to say, nothing within my Ablrate IFfy ISA would attract any relief, just as capital losses within a S&S ISA couldn't be offset against gains.

For loans that have previously been declared irrecoverable, yes I could claim loss relief against income I get from Kuflink, as an example. In future years I may recover some pennies in the pound from some of those loans previously deemed irrecoverable and that would be treated as taxable income.

I'm surprised that some of Ablrate's loans are still performing, I know that the remaining MoneyThing loan book is dead and you can't expect to receive any more interest payments from FundingSecure.  I can see how you can use this to reduce your tax on your income, but don't understand how you benefit from investing in bad debt.  You put your money into something you know is going to be a loss in order to mitigate the tax burden... I've heard people doing this but never understood how this technique can be profitable.

Who has invested in bad debt? I didn't think even Ablrate allowed defaulted loans to be traded. I know I was unable to sell my defaulted loan parts. I don't remember having the ability to even put them on the secondary market.

It could be profitable for someone to buy distressed loan parts at a discount greater than what is eventually recovered when the asset is sold. Trouble is assets are frequently sold for a lot less than they were supposed to be worth (if they exist and can be found/repossessed).