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Peer2Peer Finance News | July 21, 2019

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Investors face tax quandary on defaulted property loans

Investors face tax quandary on defaulted property loans
Marc Shoffman

PEER-TO-PEER investors are being encouraged to seek tax advice or use their own judgement on defaulted loans that are secured by property rather than waiting on recoveries.

Investors have taken to the P2P Independent Forum to raise concerns about several P2P property platforms where loans have defaulted but there is no sign of recovering the underlying security to honour repayments.

Read more: BoE issues warning to SMEs using property as loan collateral

HMRC guidance says investors can set the loss they suffer on a loan against the interest they receive on other P2P loans before the income is taxed. If a platform later recovers the funds and repays investors, the amount is treated as new income, leaving investors to decide whether to claim on their tax bill or keep waiting.

Stuart Law, chief executive of business and property lending platform Assetz Capital, warns the guidance says the relief can only be claimed if there is no reasonable prospect of the loan being repaid, which may be hard to prove.

“We are not tax advisers but our understanding is investors can confirm their own view, but they have to be able to justify it,” Law said. “We don’t have specific views on definite losses until we have finished the entire process. It is best for investors to seek tax advice so they can make a decision.”

Read more: Assetz investors call for housebuilding reforms

He said the platform has had investors question its recovery speed, but now provides more updates. “The trouble is platforms sometimes can’t share what is going on in the background in order to protect proceedings,” he added. “We can often achieve an outcome in about six months but if you have a difficult borrower it could take a couple of years.

“Stepping in on a secured property loan and acting too quickly can destroy more value.”

Neil Faulkner, co-founder of P2P analyst 4th Way, said if investors are not happy with the information on recoveries that is provided they will have to make their own judgement.

“I am not a tax adviser, but I would suggest to lenders that they also could use their own judgement if a P2P lending provider is not very transparent about what is happening with bad debts,” he said. “If a lender wants to get a tax loss over with, they could set a limit of three years after the loan defaulted and, if there’s no movement on the debt, you might assume the loan is dead.”

Read more: Everything you always wanted to know about tax but were afraid to ask

This story appeared in the April issue of Peer2Peer Finance News, now available to read online