Judicial Review – Landlord Tax Grab

Judicial Review – Landlord Tax Grab

1:00 AM, 26th December 2015, About 8 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


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Comments

Dr Rosalind Beck

9:04 AM, 17th March 2016, About 8 years ago

Reply to the comment left by "Simon Hall" at "17/03/2016 - 07:23":

Hi Simon.
I can't see how that would work. I am sometimes a higher rate taxpayer and other times not, so what would happen then? I don't know which sentence or couple of sentences has led to this conclusion. We need to clear up whether there is or isn't any basis for this.

Appalled Landlord

9:34 AM, 17th March 2016, About 8 years ago

Reply to the comment left by "Simon Hall" at "17/03/2016 - 07:23":

Hi Simon

Mark did not post that C24 has been watered down, he asked if it had been, after seeing something on Facebook: http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-793/#comments at 23.00.

I cannot see anything in the “clarification” that confirms what your sources said:
https://www.gov.uk/government/publications/clarification-to-finance-costs-restriction-for-landlords/clarification-to-finance-costs-restriction-for-landlords

NW Landlord

10:41 AM, 17th March 2016, About 8 years ago

Test

Simon Hall

13:45 PM, 17th March 2016, About 8 years ago

Reply to the comment left by "Ros ." at "17/03/2016 - 09:04":

Hi Ros I did sent an accountant's opinion yesterday he is in fact not my accountant but someone who I know, he seems to think that there may be some U-Turn. I spoken to guy called James Smith, Oxford based accountant. his number: 01235 536773

NW Landlord

14:24 PM, 17th March 2016, About 8 years ago

All this uncertainty and for what ? The stress what should I do wait ? incorporate ? if I had a gun im telling you, all totally unfair and unnecessary by a man who's never ran a business in his life

Appalled Landlord

15:01 PM, 17th March 2016, About 8 years ago

Reply to the comment left by "Simon Hall" at "17/03/2016 - 07:23":

Hi Simon

Shortly after the summer budget last year, Megan Shaw, Product Owner – Property Income & REITs at HMRC - sent an example of someone currently paying tax at the basic rate only, who will pay at the higher rate as a result of section/clause 24. She wrote “If that means you become a higher rate taxpayer (or you were anyway) then you will have to pay more tax as a result of this change.”

http://www.property118.com/budget-2015-landlords-reactions/76164/comment-page-48/#comment-58439

This shows the Treasury’s intention from the start – it will not just affect higher and additional rate taxpayers.

Simon Hall

15:20 PM, 17th March 2016, About 8 years ago

Reply to the comment left by "NW Landlord" at "17/03/2016 - 14:24":

NW Landlord the measure is not due to come in April 2017 therefore it would be premature move to incorporate at this stage as who knows that move might be ditched at very last minute. In addition we have legal challenge going on which could result in positive consequence too. Wait and See approach would be good- MY OPINION.

NW Landlord

15:33 PM, 17th March 2016, About 8 years ago

Hi Simon I am acting on marks advice as post 31st March u will get clobbered with stamp duty making it unviable so for a few k i think it's worth it and moving forward for future purchases

Simon Hall

16:06 PM, 17th March 2016, About 8 years ago

Reply to the comment left by "Appalled Landlord" at "17/03/2016 - 15:01":

AL, yes but since then on 16/03/2016 treasury issued a revised document which itself a confusing one. I can not say categorically that u turn is to be made but it has raised some eyebrows including James Smith who is an accountant and writes for Tax Cafe.

Simon Hall

16:12 PM, 17th March 2016, About 8 years ago

Reply to the comment left by "NW Landlord" at "17/03/2016 - 15:33":

NW landlord, if you have been given this advice then it should be correct one as I am not privy to something which is only valid until end of this month.

What I am aware is that there is a test case namely Ramsay in layman terms if you have medium sized portfolio say 8 plus properties and you spent 20 plus hours a week on management of properties then you may be entitled to relief called S162 which lets you incorporate and exempts you from paying CGT and Stamp Duty, no single case is same HMRC looks at case by case basis therefore pre clearance from HMRC is always recommended.

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