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

Lisa S

16:09 PM, 18th March 2016, About 8 years ago

Reply to the comment left by "David Lawrenson" at "18/03/2016 - 15:58":

I agree about lawyers always telling you that you have a chance, but the Tenant Tax is unjust, and we have to fight it any way we can.

As an aside: if we were to leave the EU, who could we complain to, if we felt, as in this case, that our government was acting wrongly? My gut instinct is to leave, but this fiasco of a tax grab, makes me think again.

Dr Rosalind Beck

16:56 PM, 18th March 2016, About 8 years ago

Reply to the comment left by "Lisa S" at "18/03/2016 - 16:03":

Hi Lisa.
Sorry for not getting back to you. Yes, I have had it and passed it on to a few people to have a look at it. I've not had time yet - it is very long!

In the meantime, I have just published another article, based on a statement which Professor Philip Booth made to me today. It is here:

http://www.property118.com/tax-neutrality-abandoned-budget-states-professor-philip-booth/85526/

19:25 PM, 18th March 2016, About 8 years ago

is this not another yet example of discriminatory treatment of Landlords?

19:31 PM, 18th March 2016, About 8 years ago

Reply to the comment left by "Lisa S" at "18/03/2016 - 15:41":

are the changes to CGT which exclude us not also blatent discrimination?

Rosanne Turvey

21:19 PM, 18th March 2016, About 8 years ago

Reply to the comment left by "Dr Monty Drawbridge " at "18/03/2016 - 10:25":

I have had holiday lets in the past and it is not as lucrative as it seems. It is VERY hard work - I used to do the cleaning myself on changeover days. I had a lot of things either broken or stolen. A lot of moans about finding somewhere to park and a lot more moans if it was raining on the day of arrival and worst of all a lot of void periods. All in all the property was probably let a total of 5 months out of every year. Hate to be the bearer of bad news but holiday letting is not all it's cracked up to be.

Bill Morgan

23:38 PM, 18th March 2016, About 8 years ago

Reply to the comment left by "Arthur Allen" at "18/03/2016 - 21:19":

Yes but I do not intend to let to just tourists.I am targeting the people that want to stay in short term accommodation including hotels.For example business people on contract work.All they get if they stay in a hotel is a room but for the same price they could get an entire apartment on Airbnb.

I actually think you could achieve a higher occupancy rate in a city like Bristol than a tourist area like Cornwall.

Also to qualify as a holiday let you cant let the property for more than 30 days to the same individual for 205 days in any given tax year.For the balance of the year ie 160 days you could rent the property to the same individual.In other words a 4 month tenancy to the same individual would be ok which covers winter.This means I could do tourists in summer and hospital workers in the winter.

I believe that renting property short term in Bristol will be easy if you buy in the right locations.

Not all properties will be suitable for holiday lets so I'm selecting the best properties in the best locations.

I accept that holiday lets will be hard work

Bill Morgan

14:45 PM, 19th March 2016, About 8 years ago

Reply to the comment left by "Lisa S" at "18/03/2016 - 15:41":

Am I not right in thinking that the CGT issue equally applies to companies?

With Clause 24 it only applies to individuals so I think that is more discriminatory.

Ian Simpson

6:08 AM, 22nd March 2016, About 8 years ago

Is there any further news on the judicial review...? This thread seems to have become miuddled with CGT , STamp Duty and Holiday Let issues... Lets try and keep it on topic! There are about four parallel threads running in this forum now, This one is supposed to be about the judicial review.

Looking forward to better news (It cannot get worse - surely!)

Sudy Trivedi

7:48 AM, 22nd March 2016, About 8 years ago

Ian I totally agree
This has lost its way and we need to get back to what is going on with the JR

I hope GOs turnaround on one part of his budget might have some sort of impact in the long run for the JR

jack hammer

13:50 PM, 22nd March 2016, About 8 years ago

Reply to the comment left by "Bill Morgan" at "18/03/2016 - 23:38":

Hi Bill,
I too am consIdering the FHL route for a block of 6 apartments here in Cardiff in a great location. But I don't quite understand your figures of 205/160 days. Equally the HMRC site giving 31 days and not more than a total of 155 days all of which is quite confusing.
Would it be possible you could kindly expand and clarify a little more please.
Best regards,
Jack

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