P2P tax relief questions

itwasntme001

I think I understand the basic rules around tax relief offset against P2P income.  I have a question around this though for when filling in the 2019/20 SA return:

For any given platform do I HAVE to declare tax relief on loans defaulted on even though it will not make a difference to the tax I pay since I will be well within the allowances even without the relief?  Assuming I will never use the loss for future tax years as reliefs (I have run down my P2P holdings to the absolute minimum but still have received very modest amount of interest).

The main reason for this is because I do not want to have to declare, for a future tax year, the tax relief amount as income in the very very unlikely event of a recovery as it may result in me paying more taxes.

bigadaj

It's up to you whether you state a loss from defaults or not, however if you receive p2p income in future years you will be liable for tax on a recovery as you say. I would, and do, simply state the income or loss relief on my return so I can track it between subsequent tax years as it's just easier and more traceable. P2p losses are only offsettable against p2p income, not any other taxable income.

masonic

No it is not necessary to claim bad debt relief, and makes no sense to do so if you have no tax liability on your P2P income. You should keep records and be prepared to explain what you have done to HMRC should they query it at any point, your declarations may differ from those of the P2P firms you've invested with.

This guide is worth a read, if only to scoff at the worked example on the last page chronicling the experiences of Tony S investing in the two entirely fictitious P2P platforms SateRetter and Zapo, whose resemblance to actual platforms, living or dead, or actual events is purely coincidental.

itwasntme001

Thanks for the replies.  In terms of keeping records, I have the tax statements from the platforms for 2019/20 tax year so should be enough I imagine?  Won't need previous ones as never did a SA before and nothing to declare given interest was well below allowances..

Out of interest (no pun intended!), should tax relief using defaulted loans be in excess of total P2P interest earned for the year of default before it can be carried forward - irrespective of whether a SA was done or not?  If true then I can discard of all previous tax statements because I know for certain I will not be able to carry forward given P2P interest was in excess.

itwasntme001

Thanks for the link masonic - so it appears the answer to my last question in my previous post is yes even though I never submitted a SA for prior years?

masonic

itwasntme001 said:

Thanks for the replies.  In terms of keeping records, I have the tax statements from the platforms for 2019/20 tax year so should be enough I imagine?  Won't need previous ones as never did a SA before and nothing to declare given interest was well below allowances..

Out of interest (no pun intended!), should tax relief using defaulted loans be in excess of total P2P interest earned for the year of default before it can be carried forward - irrespective of whether a SA was done or not?  If true then I can discard of all previous tax statements because I know for certain I will not be able to carry forward given P2P interest was in excess.

You need records of what you are officially declaring as your income from P2P in each tax year if in that tax year there is the possibility of declaring a lower figure after bad debt relief - since you are not electing to claim that bad debt relief, and therefore should not have any of your recoveries counted towards future income.

If bad debt exceeds income, then yes you enter zero for income in that tax year and in the next tax year the excess bad debt can be carried forward and used against income from that tax year. Fortunately I've never been in that position, though I would have if Collateral was a real P2P platform.

bigadaj

masonic said:

itwasntme001 said:

Thanks for the replies.  In terms of keeping records, I have the tax statements from the platforms for 2019/20 tax year so should be enough I imagine?  Won't need previous ones as never did a SA before and nothing to declare given interest was well below allowances..

Out of interest (no pun intended!), should tax relief using defaulted loans be in excess of total P2P interest earned for the year of default before it can be carried forward - irrespective of whether a SA was done or not?  If true then I can discard of all previous tax statements because I know for certain I will not be able to carry forward given P2P interest was in excess.

You need records of what you are officially declaring as your income from P2P in each tax year if in that tax year there is the possibility of declaring a lower figure after bad debt relief - since you are not electing to claim that bad debt relief, and therefore should not have any of your recoveries counted towards future income.

If bad debt exceeds income, then yes you enter zero for income in that tax year and in the next tax year the excess bad debt can be carried forward and used against income from that tax year. Fortunately I've never been in that position, though I would have if Collateral was a real P2P platform.

Well the FCA thought Collateral was a real p2p platform for a time at least. How long they can continue to kick the can down the road remains to be seen, and whether the administrators/ liquidators will have left anything for investors to claim too.

itwasntme001

There does not seem to be much on this, although admittedly it is not such a common problem.  But how is capital gains treated exactly in the P2P world?

From what limited information there is I understand that there is capital gains that needs to be accounted for under the following scenarios:

- Selling a loan in the secondary market (during the relevant tax year) provided the loan was originally bought in the secondary market

- Loan capital repaid (during the relevant tax year) for loans originally bought in the secondary market

For any loans bought in the primary market there would be no need to include in any CGT calculation, whether subsequently repaid by the borrower or sold in the secondary market.

How should all this be reported in the tax return?  Could I just include on overall net total or do I need to provide figures for each loan sold/repaid?

Is my understanding of the above correct?  Anything I may be missing?

Thank you.

masonic

itwasntme001 said:

There does not seem to be much on this, although admittedly it is not such a common problem.  But how is capital gains treated exactly in the P2P world?

From what limited information there is I understand that there is capital gains that needs to be accounted for under the following scenarios:

- Selling a loan in the secondary market (during the relevant tax year) provided the loan was originally bought in the secondary market

- Loan capital repaid (during the relevant tax year) for loans originally bought in the secondary market

For any loans bought in the primary market there would be no need to include in any CGT calculation, whether subsequently repaid by the borrower or sold in the secondary market.

How should all this be reported in the tax return?  Could I just include on overall net total or do I need to provide figures for each loan sold/repaid?

Is my understanding of the above correct?  Anything I may be missing?

Thank you.

Selling a loan on the secondary market for a different price than you paid for it (either on the primary or secondary market) would result in a capital gain/loss. Selling a loan on the secondary market for the same price that you paid for it would not. Some platforms (e.g. FundingSecure) have interest rolled up in the price, making the calculations less straightforward. There is a suggestion that selling a loan bought on the primary market is exempt from CGT as it is a simple debt, but I'm not sure I trust this to be a general rule - there are quite a few examples of P2P lenders not being the original lender, such as where the platform makes the original loan, where there are underwriters involved in filling it, or where the loan is rolled over and some lenders chose not to renew and are replaced by new lenders.

Most people would find that their capital gain is covered by their annual CGT allowance, in which case there is no need to declare anything in your tax return.