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Dubious investment

Client made loan with too good to be true returns - what to do if the capital disappears?

My client made an investment loan of £200k with too-good-to-be-true returns of £6k monthly in January 2017. To date 9 months of interest payments have been made, happening gradually later and later past the due date, and then completely dried up in February of this year. I'm wondering what to do in the possible event of the capital altogether disappearing, and hope that I can then treat the 'interest' amounts as untaxed repayment of capital. Am I correct?

And as a disclaimer I was not consulted about the investment (sigh), my client's sister was working for the company, but I did decline her after-the-fact offer of an introduction to make a investment myself...

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11th Jul 2018 17:25

Is there any documentation?

Is it a QCB or non QCB?

What were the payments described as when paid?

What are the prospects for recovery?

Has any action been taken / are lawyers involved?

If not, why not?

If this isn’t your area, refer it onwards as it can be quite involved.

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11th Jul 2018 17:39

RG wrote:

I'm wondering what to do in the possible event of the capital altogether disappearing, and hope that I can then treat the 'interest' amounts as untaxed repayment of capital. Am I correct?

I suspect the short answer is no. What would be the grounds for recharacterising? Presumably the 'on time' payments couldn't be described as other than 'interest'. A payment made (say) a day late can't suddenly be treated as something different.

Are you confident that there was an investment or is this just a Ponzi scheme? Does any documentation exist? Maybe one for the Police if it looks like fraud. (SAR?)

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12th Jul 2018 09:59

What do you mean "a possible event of the capital disappearing"
It's a rock solid certainty. Possibly it's a Ponzi scheme

What was the "investment" in ??
UK or abroad ?

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12th Jul 2018 10:02

You have probably already considered making a Suspicious Activity Report to the NCA. If you have not previously considered that, then do so now.

If making a report you may find this guide useful
http://www.nationalcrimeagency.gov.uk/publications/517-submitting-a-susp...

David

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12th Jul 2018 12:37

See the decision in Rusling v HMRC (TC03813), which references an earlier case, Mazurkiewicz.

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By Matrix
12th Jul 2018 13:53

I assume your client is an individual and income tax was deducted on the interest?

I don't see why you would recharacterise the receipts as anything other than interest. The borrower will be claiming an interest deduction so your client will be taxed on the interest pick up.

There may be issues whether the interest is on arm's length terms but that is an issue for the borrower. I don't see why you would need to file a report. Surely your client has just made a bad investment decision.

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to Matrix
12th Jul 2018 18:01

I assume the OP suspects that the client has been the victim of a fraud & that no further payments (of either capital or interest) will be forthcoming.
My understanding is that in that event (since the capital invested has never been returned or reinvested) the 'interest' payments will not be taxable (but should be noted on the 'white space'). But tax is not my 'thing' so don't take it from me.
David

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12th Jul 2018 14:27

You're assuming that the borrower is claiming tax relief on the interest. I doubt it

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