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1:00 AM, 26th December 2015, About 8 years ago 280
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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 said “A 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.
Chris Cooper
20:40 PM, 21st February 2016, About 8 years ago
Reply to the comment left by "Graham Kogan" at "21/02/2016 - 20:29":
Hi Graham - I doubt it. From what I have heard, if the vote is to leave the EU, then two member States are tasked with deciding on how that would be implemented. I understand that process takes two years, and then the exit a further five. However, of course, we will be liaising with our legal team. Regards, Chris.
Gareth Wilson
19:31 PM, 24th February 2016, About 8 years ago
Latest Update from the Judicial Review Facebook Page:
"The next update on our legal challenge is currently being finalised and will be with you all in the next 24 hours. Watch this space and your inboxes!"
Dr Rosalind Beck
19:39 PM, 24th February 2016, About 8 years ago
Reply to the comment left by "Gareth Wilson" at "24/02/2016 - 19:31":
Exciting!
Gareth Wilson
14:32 PM, 26th February 2016, About 8 years ago
The below important update has just been posted to the Judicial Review Facebook Page by Chris & Steve:
"UPDATE:
Hi all,
Our sincere apologies for the limited updates recently. It has been a very busy few weeks with the priority being to prepare, complete and submit the best possible application for Judicial Review.
Thank you to all of you who provided us with case studies.
If you want more detailed information and an insight into our case, then this can be found in the Statement of Facts and Grounds, which can be downloaded via this link: http://www.propertycoalition.com/letter
This forms part of our application and sets out our case and anticipates some of the points we expect the Government to make in response.
It has been worked on and signed off by Cherie Booth CBE, QC, (the professional name of Cherie Blair) and Conor Quigley QC, who are leaders in the fields of human rights and State aid law respectively. These are the two legal grounds on which our judicial review claim is based.
The Story so far
The legal process has now progressed and our application for judicial review was filed with the Administrative Court in London on 17th February. The application requests the Court’s permission to commence judicial review proceedings in full; this is a preliminary hurdle we need to clear before the substantive challenge can begin.
We expect the Government (specifically, each of HMRC and the Treasury) to respond to our application in due course with what is called an “Acknowledgement of Service”. In its Acknowledgement of Service, a defendant must set out a summary of the grounds on which it intends to contest the application for permission and/or contest the entire claim (depending on the approach the defendant intends to take). We expect the Government to respond aggressively. If they do not respond, the Court will decide the question of permission on the basis of the information that has been provided. In the unlikely (but welcome) event that the Government concedes the claim, it will need to set out how it will remedy the situation, which we have said will require primary legislation to repeal Section 24.
Assuming no extension is granted by the Court, the defendants’ deadline for filing their Acknowledgements of Service with the Court is 16th March – the irony of it being Budget day is not lost on us.
The Government also has what is known as “a duty of candour”, which means that it must be forthcoming with information that might assist the court to understand the Government’s decision-making processes and deal with the issues fairly. We have made various requests for information but none has yet been provided.
The Court will wait for the defendants to file their Acknowledgements of Service before it addresses the question of whether to grant us permission.
At that point, the Court will do one of three things:
1. Grant permission “on the papers” (i.e. without the need for a permission hearing)
The Court would proceed to schedule our claim for a full hearing. At the moment, and if permission is granted, we would expect this substantive hearing to last 2-3 days (although this may change depending on the Government’s response), and for a hearing of that length we will likely have to wait till September, after the Courts’ summer break.
or
2. Schedule a preliminary hearing on permission
This would be a short hearing at which the parties would be invited to make oral submissions to the Court on the question of whether permission should be granted. This can be fitted into the Court’s schedule more quickly – we understand that the wait will probably be in the region of about six weeks.
or
3. Refuse permission on the papers
If permission is refused on the papers, we will have 7 days to request reconsideration and an oral permission hearing. Again, the wait for the hearing would likely be around six weeks. If permission is granted after an oral permission hearing, we are still probably looking at September or later for a substantive hearing.
As you can see, predicting when we might have a definitive answer on permission is difficult, as it depends on the Court’s approach and workload. It might be as early as March or April, if no hearing is required, or could be in the autumn if a hearing is needed.
If we are granted permission then we will launch our next fundraising campaign so we can pre-fund the action.
As the case progresses, we will share relevant information with you as we receive it from the legal team.
Objectives
The primary objective is of course to secure our day(s) in court to make a strong, public challenge to the lawfulness of Section 24.
Beyond that, we are hoping for a positive result but are mindful both that judicial review proceedings are inherently difficult and also that, even if we win, the Government might introduce changes or new measures that are more defensible legally but still unattractive and problematic for hard-working private landlords.
Next Steps
Please keep spreading the word by:
1. Sharing the Facebook page - https://www.facebook.com/clause24/
2. Asking others to register for the newsletter – accessed here - https://www.crowdjustice.co.uk/case/clause24/ by clicking on the “register for updates via CrowdJustice” link at the top of the page.
Best regards,
Steve Bolton and Chris Cooper"
Chris Novice Shark Bait
14:39 PM, 26th February 2016, About 8 years ago
I have only just recently become aware that our considerable squirreled up previous losses over 10 years are about to be evaporated by clause 24 far sooner than we anticipated. We had hitherto naively hoped that these would save us from adverse affect over the transitional period.
Our accountants, initially slow off the mark, now inform us that, because of the very cleaver method of calculation we will be robbed of much of our carry forward losses, generated over 10 years as we
improved our properties going forward with a long term business view and aspiration to supply decent rental homes and providing for our pension.
I have just read the factual JR submission. This is an additional point the complainants and legal team should be aware of.
Anyone else in the same boat?
Chris.
Dr Monty Drawbridge
13:29 PM, 27th February 2016, About 8 years ago
I'm a bit surprised to see that the original notice was served on the wrong HMRC address and had to be re-served. And that a second party was identified who needed to be served notice and that in the rush to meet the 6 month JR deadline, they were consequently not given the required time to respond to the notice before the application was submitted to the court. Perhaps it's just a technicality but seems a bit chaotic on "our" part?
Gary Dully
0:07 AM, 10th March 2016, About 8 years ago
Reply to the comment left by "Chris Novice Shark Bait" at "26/02/2016 - 14:39":
Hello Chris,
We are all in the same boat, as all our bad debt and losses appear to get munched up by the "borrowers tax", (Clause 24).
Strangely enough corporates won't be affected in this way either.
So for example my £55,000 of bad debt that I can happily chase for 6 years will have to be used to reduce my inflated tax bill, in an effort to remain solvent.
This whole system is a disgrace and the Judicial Review can't come quick enough.
Michael Fickling
8:47 AM, 10th March 2016, About 8 years ago
response to chris novice sharkbait !!
Chris my understanding was that pre existing losses would still be carried forward..although diminished each year 2017 onward obviously as you make "profit" (alleged profit that is) under the new rules...as almost all of us previous loss makers would.
I have a large accumulated loss too.Just asking excatly what you were told/informed ref that please?
Chris Novice Shark Bait
10:50 AM, 10th March 2016, About 8 years ago
Reply to the comment left by "Gary Dully" at "10/03/2016 - 00:07":
Hi Garry. Thanks for your reply. Some of us are in a similar boat. Not sure how many? I am a sole trader in a partnership at will. We both have losses to carry forward of a collective magnitude of £140K! We are not married and own properties as tenants in common with mostly 50:50 arrangements but I have 3 in my sole name. Transfer of profit and loss shares may be possible without altering beneficial interest and incurring costs of CGT/SD etc. Source my accountant. I await details.
My main reason for posting was to make sure that this point is recognised by the Judicial Review Team. I am not on Twitter and this site has been inactive for some time. Could someone on Twitter post any relevant updates please?
Our losses represent the degree of investment and subsidy towards tenants aimed at high standards and longevity of tenure. We took a long term view that is in our view being illegally and unilaterally cut short.
Chris.
Chris Novice Shark Bait
10:59 AM, 10th March 2016, About 8 years ago
Reply to the comment left by "michael fickling" at "10/03/2016 - 08:47":
Hi Michael, see my above comment. I am awaiting clarification from my accountants (under threat of going elsewhere) who have hitherto proved difficult to pin down on this.
It does seem that we are stuffed by an even stealthier form of robbery that will receive no sympathy with the general public. Indeed it will go under the radar. I was, and still am hoping that if we could highlight it in the judicial review proceedings then Europe may take a view????
Chris.