Selling

The process of offering an investment for sale consists of choosing an investment to sell, deciding how much to sell and whether to offer at a discount, at par, or at a premium and then posting the offer. If successful the sale will appear in your list of activity and the investment (or part of the investment) will be removed from your active investment listing.

Buying

The process of buying an investment on the secondary market consists of selecting the investment, deciding how much to buy and committing to buy. The purchase will appear in your list of activities and the investment will be added to your active investment listing.

CAUTION: When buying a loan part you are purchasing the original loan part. In line with HMRC rules you will therefore be responsible for any tax liability on all interest paid when the loan completes. As this can result in  an overall loss, especially if the loan is repaid early, you should bear this in mind when purchasing on the secondary market.

TAXATION

ADVICE
Please note, we are unable to provide any specific information about tax. The wording below is for indicative purposes only, and does not constitute tax advice. If you are in any doubt about your tax position you should speak to your accountant or an adviser at an HMRC enquiry centre.  This information is only relevant to UK tax resident individuals holding loans directly as legal and beneficial owner.

INCOME TAX
Unlike other platforms we do not collect interest from the borrower at the time the loan is issued. This means that the "accrued" interest is an estimated value and has not yet been paid by the borrower. Although HMRC require us to report payments of interest paid to individuals we are not required to report any figures for accrued interest. More information can be found here.

Seller - The funds received by the seller of a loan part on the secondary market are considered a capital transfer, plus a premium paid as an incentive, in payment for the original capital lent. They are therefore not reported to HMRC and are not usually liable for income tax.

Buyer - The buyer pays for the capital of the loan part, together with any premium. When the loan is repaid the buyer will be responsible for all income tax liability on the full interest earned.  FundingSecure are required by HMRC to report this interest paid to UK individuals at the end of each tax year.

IFISA
If you buy or sell a loan part on the secondary market within your IFISA any gain / loss will not affect your tax liability.

CAPITAL GAINS TAX
Secondary market transactions are considered to be purchases / sales of the original loan which is a “simple debt”. As such they are not usually liable for capital gains tax. In the event of a capital loss due to a default the loss is calculated against the original capital value, not including any premium / discount paid through the secondary market. The current capital gains annual exempt allowance for an individual is £11,100.
NOTE: If you buy and then resell the same loan part on the secondary market it may no longer be considered as a “simple debt” and any gains may be liable for capital gains tax. Further information is available here.