Judicial Review – Landlord Tax Grab

Judicial Review – Landlord Tax Grab

1:00 AM, 26th December 2015, About 7 years ago 280

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Landlord Tax – George Osborne Policy To Face Judicial Review.

Private Buy-to-Let housing providers have chosen Boxing Day 2015 to begin their fight back at Chancellor George Osborne and his discriminatory tax regime, announced in the Summer Budget, which only targets private landlords with mortgages via the Judicial Review process.

New tax rules will treat mortgage interest as though it is earned income and push many rental property owners into higher tax brackets. Knock on effects can also include increased CSA payments and removal of other vital benefits but Osborne’s tax measures will not affect the wealthiest landlords (those with no mortgages), or indeed limited liability companies which borrow money to fund buy-to-let property investment portfolios.

Social Media has been buzzing in recent weeks calling for legal action to be considered.

The first step to instigating a Judicial Review is to obtain a detailed Legal Opinion from specialist legal counsel. Omnia Strategy LLP, established in 2011 by Cherie Blair CBE, QC, has been appointed.

The organisers of the campaign have launched a fund-raising appeal via the Crowd Justice website. Thousands of landlords are expected to donate funds.

Letting Agents and Mortgage Brokers are also being encouraged to contribute to the fund raising campaign. This is because their businesses are likely to be hit too if landlords stop investing or choose to sell up.

A member of ICAEW commented;

It is a long established principle of taxation that expenses incurred wholly and exclusively for the purposes of the business are deductible when calculating the taxable profits. Clause 24 of the Summer 2015 Finance Bill contravenes that principle and will result in proprietors of property businesses being liable to tax on a fictitious profit – even if the proprietors really make a loss.

The tax change does not just affect new borrowings. Landlords with existing borrowings will be affected. Portfolio landlords will be particularly badly hit.

As a consequence of the tax change, major changes in the private sector will take place. Some landlords will pass on their increased tax by increasing rents. Others will be forced to sell, as they will not be in a position to pay the extra tax demanded by HMRC. Homelessness will increase as some tenants will not be able to afford higher rents and many will be evicted by landlords forced to sell”.

Mark Alexander, founder of the Property118 Landlords Forum said “it is important for the whole country that funding is raised to win this legal battle. Millions of Britons simply do not qualify for mortgages to be able to purchase a home of their own. The number of people seeking to rent privately has been increasing in line with the growth of the population for decades. It is all very well the government having an ambition for everybody to be a homeowner but they must be made to realise that isn’t realistic. The UK has an ever growing reliance on the Private Rented Sector. Investment and building needs to be encouraged, not taxed into oblivion”

In a letter to the Chancellor, Conservative Lord Flight saidA lot of Buy to Let investment has been an alternative to saving for old age via pension schemes.  Up until World War II investing in rented property was the main method of providing for an income in old age.  Given the poor performance of the Stock Market over the last 20 years, it is hardly surprising that many people have opted for Buy to Let investment as an alternative source of retirement provisioning.  But Buy to Let does not enjoy any of the major tax advantages of pension saving, i.e. tax credit on the amount invested and accumulation of income and capital gains tax free within the pension scheme.  The only Buy to Let “tax advantage” has been the ability of the interest cost to be offset against an individual’s income to determine their tax rates/bill – the very thing which you have attacked.”

When Lord Flight referred to offsetting the interest cost against an individual’s income he of course meant rental income only, not total income.  Buy-to-Let interest is not deducted from any other income that a landlord might have – unlike the way MIRAS used to work.

Nor can Buy-to-Let losses be set off against any other income.  A BTL property has to pay its own way.  If it gives rise to a loss, the owner has to make good the loss out of other taxed income.  Landlords do not receive any tax “breaks”.

BTL has increased housing stock by 2.5 million between 1996 and 2013.

BTL was only responsible for one-twentieth of the 150% price increase between 1996 and 2007, which is insignificant.  Prices would have gone up even more if BTL had not financed the 2.5 million increase in supply – and so would homelessness.

Deducting finance costs from rental income is not a tax relief it is normal accounting practice everywhere, and for every business. That is why Lord Flight put “tax advantage” in inverted commas.

Disallowing finance costs for existing rental businesses is iniquitous and will be damaging for the economy.  Rents will rise.  Tenants who cannot afford the rises will be made homeless, to be put in temporary accommodation in whichever part of the country it can be found, at greater cost.

For these reasons, it is vital for private landlords, tenants and the entire rental sector that this funding campaign is successful.

The window of opportunity to submit an application for Judicial Review closes on 17th February 2016.

The Crowdfunding website page for making donations to the legal action fund can be found via a Google search for “Crowd Justice Judicial Review of Clause 24” or CLICK HERE.

Further information link

JUDICIAL_REVIEW



Comments

Mark Alexander - Founder of Property118 View Profile

11:28 AM, 3rd January 2016, About 7 years ago

Hi Kathy

I'm not a fan of the phrase @turnover tax" Kathy. I think it's misleading because other expenses such as insurance, service charges, management fees etc. remain deductible form turnover in order to establish taxable income. Discriminatory Finance Tax is a better description of clause 24.
.

Kathy white

10:35 AM, 4th January 2016, About 7 years ago

Reply to the comment left by "Mark Alexander" at "03/01/2016 - 11:28":

Hi Mark
Fair comment, I agree

Simon Griffith

12:31 PM, 4th January 2016, About 7 years ago

Reply to the comment left by "Mark Alexander" at "03/01/2016 - 11:28":

Hi Mark,

Do you think as we move forward with the campaign it might be appropriate to start using the headline 'George's Tenant Tax' or something similar. This will surely attract the attention of groups other than just what may be perceived as self interested landlords. Much the same as one of the welfare changes is now known as the 'Bedroom Tax'.

Has anyone had any response from the RLA and NLA as to how they may support the Judicial Campaign ? I am waiting to hear back from the latter.

Both my MP and the MP for the bulk of my tenants have been treated to a new year update from me including excerpts from my rent increase letter with their contact details going out to my tenants shortly.

The efforts of Chris, Steve and Property118.com raising £50k so quickly and offering some hope are incredible - really well done. We managed to pledge but we didn't have time to send out details to all my fellow landlords/connections - are we all now waiting for the initial review before then a major push (assuming positive review), hopefully assisted by RLA, NLA et al ?

Simon Griffith

14:37 PM, 4th January 2016, About 7 years ago

ps I should have mentioned that 'George's Tenant Tax' came from Jacob's excellent piece in his new year message for George Osborne.

Ian Hamilton

18:59 PM, 4th January 2016, About 7 years ago

Reply to the comment left by "Simon Griffith" at "04/01/2016 - 12:31":

Simon,

I had this back from the NLA after I emailed to make sure they were aware of the Crowd Justice Appeal.

Hi Ian
Keep up the good work!

I thought you might like to read / publish what NLA has been doing towards this unfair tax.

We’re always concerned when landlords perceive the response of the NLA to be inadequate, none more so than in response to the tax changes announced in the July Budget/ the Finance Bill.

We recognise that members – and all landlords for that matter – want immediate results, particularly on an issue as fundamental to their businesses as this. However, the Chancellor will not want to be seen to change his mind and the press and public are largely unsympathetic to landlords, readily accepting the line that they have an unfair advantage over first time buyers. The reality is that there is no quick win available, and while we will protest and campaign in public, our best chance of success is in the detailed dialogue with Treasury officials, and through them with Ministers.

It may have appeared that the NLA has been keeping a low profile but we have looked at all possible avenues to oppose the changes to landlord taxation and the Finance Bill. We considered whether there were grounds for a judicial challenge, but could not identify any that we thought would carry sufficient weight before a court. We have therefore pursued the political arguments which we believe will prove more effective in the long run. However, from past experience, the Treasury civil servants will dismiss any argument which is not based on solid evidence and reasoning, and before they take it seriously, they will pull apart the data on which it is based to make sure it stands up. Our main focus will always be on ensuring a favourable environment for landlords to continue to operate their businesses. Lobbying for policy change, especially on a issue such as taxation, is a complex and intricate process. We must ensure that our opposition to the Finance Bill is credible and this is why we have spent a great deal of time to produce fully researched and evidenced proposals to mitigate the impact of these changes, details of which you can read here.

While we will of course keep our members and the wider landlord community informed of what we are doing, we feel there is little benefit to revealing our entire hand in advance, and negotiations are less likely to succeed if they are conducted through the media or in wider public.

It may also be helpful to set out the detail of our activity on the Finance Bill thus far.

First, we wrote to the Chancellor in the week before the Budget when rumours began to circulate that the Budget would include significant changes to landlord taxation. This letter was reported in the Times on 7 July. We received a reply from the Financial Secretary to the Treasury, David Gauke MP, after the Budget which suggested that we should be grateful that they had not withdrawn the mortgage tax relief and that the Government believed it was unlikely to have a significant impact on house prices or rents.

Since the announcement we have also:
• Issued an immediate press response.
• Formally written again to George Osborne expressing our dismay at the decision to tax revenue expenses
• Engaged the Chancellor’s private office in discussions over addressing this issue
• Produced a comprehensive and costed briefing to help members understand the detail of the issue and to undermine the Treasury’s justification for the change.
• Given countless media briefings and interviews supporting landlords, resulting in our comments being published in over 100 articles in the past few months, including in the Times, Daily and Sunday Telegraph, Daily Mail and ITV News, as well as appearances on BBC Radio 4’s You and Yours, Money Box and local radio stations.
• Re-tasked a research project which was already in train and due to complete later in the year so that the results would support our campaign.
• Met the Head of Income Tax Policy, policy advisers and the HMRC lead official on 19 August. The officials were sent the briefing before the meeting and appeared to have been impressed, although it was clear from their attitude and answers that a change of heart was highly unlikely. However, there was little sign of thinking beyond the immediate issues, which gave us the opportunity to suggest that we might explore the wider issue of landlord taxation in an effort to find ways to mitigate the impact. The NLA Policy team has been working to develop further proposals and briefing since then.
• Published a blogpost outlining our early steps on 20 August, which included a link to the briefing document.
• Liaised with other industry organisations to explore the possibility of a combined response.
• Offered amendments to the Finance Bill to MPs, to be tabled when Parliament returned from the summer recess. The membership of the Committee which considered the detail of the Bill was announced on 9 September, so we focussed our efforts on those MPs with the most immediate influence.
• Met individual MPs who have indicated that they might be willing to support our campaign.
• Put in place a campaign to encourage our members to email the MPs in the constituencies where they live and where they own property using our NLA Lobby system, which went live in the week MPs returned and was promoted to all NLA members and Associate Landlords in NLA Focus on 11 September.
• Devoted 7 of the 48 pages of the September/October 2015 issue of UK Landlord to the immediate reaction to the Budget changes.
• Posted regular updates on the NLA website and in the fortnightly Focus newsletter. All the various items have been brought together in a single campaign page here

I do hope that the above puts your mind to rest that we are continuing to work tirelessly – and as effectively as possible – on behalf of our Members. We DO value input but the advice we have received over the years from civil servants, MPs & Ministers is that our professional, unsensationalised, fact-based approach carries more weight with decision-makers than headline-grabbing, knee-jerk comments.

I do hope you will continue in Membership with NLA – or join us if you have not yet done so!

Yours sincerely,

Patrick

Patrick Jacobs | Director of Finance
National Landlords Association
T: 020 7840 8900| M: 0 | W: landlords.org.uk
National Landlords Association Limited (by guarantee) registered in England number 4601987. The Landlords Association Limited (by guarantee) registered in England number 4336449. Both companies are registered at Skyline House–2nd Floor, 200 Union St, London SE1

Gareth Wilson

13:50 PM, 5th January 2016, About 7 years ago

If you're yet to do so, please can you ensure that you Like and share the below Facebook page:

https://m.facebook.com/clause24/

This is to ensure that you receive and can respond to all possible updates concerning the Crowd Funding.

Simon Griffith

11:58 AM, 6th January 2016, About 7 years ago

Thanks Ian for copying me in on the NLA reply to your enquiry Quite clearly they have done a lot but I am still of the view that I would have liked to see a more confrontational approach such as that which Steve and Chris have brought us. Hoping that the Judicial Review will progress I hope/expect the NLA to assist in bringing it very much to all their members attention at the very least. I will still post my NLA reply when it arrives as it will hopefully comment on the Judicial Review.

Thanks Gareth. I have so far resisted the modern world in the form of Facebook but this issue is too important to shy away any longer ! Off to log onto facebook for the first time now !

Simon Griffith

17:15 PM, 6th January 2016, About 7 years ago

Hot off the press a reply from the NLA

'Thank you for your email.
We wish them luck and you can see the NLA position here.'
http://www.landlords.org.uk/node/15964

Regards

Matthew Oliver | Public Affairs Officer
National Landlords Association

I understand their position but worry that assuming this narrative will as a minimum be posted on their website and quite possibly be emailed to all members it may in fact put off some members from supporting the campaign in due course.

What does everyone else think ?

Dr Monty Drawbridge

17:36 PM, 6th January 2016, About 7 years ago

If the NLA have explored the arguments in some depth, perhaps they could share their analysis with the campaign organisers and their lawyers?

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