Investor - Frequently Asked Questions
Yes, in most cases. Lending for residential investment is not allowed under HMRC rules although loans for residential development and any commercial property are permitted. Care should be taken to sell your participation in a residential development loan should the borrower decide to roll the loan into an investment in the absence of selling the completed property.
Crowdfunding is classed as a non-standard asset by the FCA for Self Invested Personal Pensions (SIPPs) purposes. You are likely, therefore, to encounter resistance from most SIPP providers.
If your pension fund is a Small Self Administered Scheme ("SSAS") we have relationships with pension providers who have pre-approved CapitalStackers as a qualifying asset class. See our "Invest Through Your Pension" page.
We do not provide investment or taxation advice and you should refer to your IFA or tax adviser as necessary. That said, we do know that you risk incurring a significant tax charge in the event your pension is used to fund any of the following:
Loans to individuals. You should only lend to trading businesses, not individuals. Although lending to individuals on the CapitalStackers platform is rare, such deals are hidden from pension lenders.
Loans to a connected party. Generally, this would be a family member or a business colleague. Essentially, any loans you make should only be to third party borrowers wholly unconnected to you or your business.
Loans for the purpose of residential investment. However, you are permitted to lend on residential developments. You need to be aware there is a possibility that a residential development might be deemed by HMRC to have become a residential investment property if it could be used as a dwelling. The rules were written before the advent of crowdfunding and in that regard lack much needed clarity which is being sought by crowdfunding platforms. In the meantime, you should take care to monitor your residential development loans and seek to exit your participation prior to the point at which the security could be deemed to be a dwelling. In this regard, the following HMRC guidance is relevant:
“The definition of residential property is a building or structure that is used or suitable for use as a dwelling. It does not therefore apply to property, including land, which is not residential property when the investment-regulated pension scheme acquires it. But the building or structure may become residential property whilst owned by the pension scheme as a result of being subsequently subject to development.
Whilst it is in the course of construction, conversion or adaptation such land and property is not residential property because during that period it is not suitable for use as a dwelling. Land and buildings being converted are treated as residential property from the point when they become suitable for use as a dwelling. In any specific case this point should be determined by taking a common sense approach to the facts and circumstances.
Essentially the question to be answered is: would a person normally live in that dwelling? The point at which this occurs will normally be when the works are substantially completed. In the case of UK property this is likely to be when the certificate of habitation is issued. A property that is sold before the development or conversion is substantially completed never becomes residential property.”
Each type of loan is categorised separately and residential investment loans are and hidden from pension lenders.
When setting up your account with us you will be asked to confirm that you understand the implications of lending to these types of borrower.
All deals are subject to auction with the eventual pricing then being determined by investors. If there is high demand, the rate will fall. Conversely, if demand is low, investors will have the ability to bid the rate up. We have a safety mechanism in place so that the rate cannot be bid down to a level where it would look out of kilter with the risk. In the event that investors drive the rate higher than the target rate, the borrower has the option of withdrawing or accepting the higher rate. In these circumstances we would reappraise the deal on the basis of the higher pricing so that investors can confirm their bids in the light thereof.
So whilst CapitalStackers brings borrowers and investors together, the pricing is a function of market forces coupled with what both parties are willing to accept.
For ease of comparison, in addition to the Coupon, we display the Internal Rate of Return (IRR) which is the annualised return taking into account compounding. All returns are shown gross of tax.
CapitalStackers will pay interest gross and provide investors with statements of the interest received. Tax payers are obliged to declare this income to HMRC.
If you buy or sell in the secondary market and the transaction includes a premium or discount to the face value of the loan including interest to date, there will be a capital gain or loss which should also be reported to HMRC.
Note: Investment through CapitalStackers is only available to those with UK bank accounts.
In the same way that you would pay a stockbroker for selling your shares, we charge fees for selling loan participations through our secondary market. Details of these transaction charges are published in the membership area.
There are two types of bid in the Primary Market. A Non-Agreed Bid is where investors win by offering the lowest rate and so are subject to being outbid at any time up to the auction close. Alternatively, an Agreed Bid can be made at a discount to the Borrower's target rate or the market rate if lower. The Borrower benefits from a lower than market rate whilst the investor benefits by not being subsequently outbid, even if the market rate drifts lower than this Agreed Bid. Auctions can be wholly competitive with Non-Agreed Bids only; partly competitive where both Agreed and Non-Agreed Bids are enabled; or, non-competitive where the same rate applies to all investors and winning bids are selected on a 'first past the post' basis.
The second type of auction applies to the Secondary Market where an investor chooses to post a participation in an existing deal and other investors compete in terms of how much they are prepared to pay for that investment given it will definitely include rolled up interest in the case of a development and potentially include rolled up interest in the case of an investment loan. We provide calculation toolkits so that the seller and purchaser are able to see their respective returns based on the amount paid. Secondary Market transactions are strictly between investors and do not involve the Borrower.
Naturally, this is the last thing on our minds, but prudence demands we address it (and so, incidentally, does the FCA). It is entirely possible that unforeseeable circumstances might arise which demand we protect our investors by implementing an orderly wind-down of our activities.
You can take comfort from the fact that we have a formal agreement in place with Hallidays Chartered Accountants and CapitalStackers Trustees Ltd (over which Hallidays has full control), detailing a comprehensive plan to deal with this situation.
Any loan you make through the platform is governed by an agreement between CTL (acting on your behalf) and the borrower (i.e. the developer / property investor). Your lending relationship with the borrower will therefore survive whatever happens to the CapitalStackers platform. And since the majority of CapitalStackers’ income is paid at the end of the deal, the costs of winding down the portfolio are already covered.
So to be absolutely clear on this point - in the unlikely event that the platform ceased trading, your interests will be safeguarded to the conclusion of the deal by a long established and highly regarded professional firm.