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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 Byways
11:10 AM, 27th December 2015, About 8 years ago
Looks a slightly grey area.
Bob has a portfolio of 10 buy to let properties, works full time looking after them and is seeking to increase his portfolio – Bob must pay Class 2 NICS on his rental profits as he is running a business under NICs rules
OTOH
Claire also has a portfolio of properties. She spends half her working time managing them and is not considering expanding her portfolio. Providing her letting activity is confined to acting as a landlord and not providing extra services, Claire does not pay Class 2 NICS
Seems like mens rea - what's was in their mind as to expanding portfolio?
Does 30 hour pw not attract c2 NI, BUT 35 does?
Rashid case has some useful pointers:
I agree with Mr Cormack that one must be careful about applying the meaning of "business" in other contexts but the authorities are some help in conveying the ordinary meaning of business generally. I think one should also be cautious of cases concerning companies because although a company does not necessarily carry on business it is perhaps more likely to be doing so than an individual if that is one of its objects. The context here is that business is included along with trade, profession, office or vocation in the definition of employment, implying activity in contrast to mere investment, although of course there can be a business of investment, as in the definition of "investment company" for corporation tax: "A company whose business consists wholly or mainly in the making of investments…" (section 130 of the Taxes Act 1988). A property rental business can be an example of an investment business. Whether property rental is a business in any particular case is a matter of degree. I am short of evidence about the type of lettings. It seems to me that since two of them are wholly commercial and another partly commercial the Appellant’s activity in relation to them will be less because there will be less turnover of tenants and less work as there are no common parts in two of the properties let to one commercial tenant and I suspect less need to check that the tenant is not misusing the property and fewer appliances to go wrong. In addition to the commercial tenants there are three residential tenants in one property and one in another. More activity will be required in relation to these but even these may be let for periods of a year to students. The Appellant clearly has responsibilities when things go wrong and need attention which will require some activity but nothing more than a landlord normally does.
Standing back and looking at all the evidence although I think that the case is near the borderline in the end I am not satisfied that there is sufficient activity for it to constitute a business. In my view, it is an investment which by its nature requires some activity to maintain it, rather than a business.
Paul Hawkins
11:47 AM, 27th December 2015, About 8 years ago
Thanks to everyone involved in highlighting this case and moving it forwards. I’ve pledged £100 and happy to pledge further amounts as the case progresses
steve p
12:04 PM, 27th December 2015, About 8 years ago
Reply to the comment left by "Chris Byways" at "27/12/2015 - 11:10":
As you say its a grey area but it could be used as a loophole to avoid clause 24... In that if you are highly leveraged and have 10 properties or more and claim you are looking to expand then you could claim you are a sole trader and pay NIC's, now you are a sole trader business not investor surely you cannot be treated differently than any other business in the same trade and so should be able to offset the interest mortgage expenditure...
If as currently clause 24 stands even if you are a sole trader and paying NIC's then you would be treated differently.. Just another angle worth pursuing?
Dr Rosalind Beck
12:53 PM, 27th December 2015, About 8 years ago
Reply to the comment left by "steve p" at "27/12/2015 - 12:04":
That's interesting, Steve and certainly worth thinking about.
Chris Byways
13:37 PM, 27th December 2015, About 8 years ago
I don't see anything wrong with gov treating different busines types (sole trader v corporate etc) differently, where there is SHOWN a public benefit. Sorry, playing devil's advocate - literally, but we do need to discuss such points. Making a legitimate business plan suddenly loss making seems challengeable.
We are already disallowed the 10% tax rate on exit / Entrepreneurs relief available to other businesses. I was delighted to get that in the past.
Hmmmmnn, now if we ran LLing as a business from one of our properties........ No it wouldn't.
Darlington Landlord
20:17 PM, 27th December 2015, About 8 years ago
100 pledged and shared
Gareth Wilson
23:12 PM, 27th December 2015, About 8 years ago
Here is a surprisingly simple and efficient way for members of Property118 to boost the campaign against Clause 24. I did this yesterday and it took me about 2 hours.
We have a problem in that lots of landlords are not a part of online communities like this. But we know that lots of landlords advertise their property online.
What you do is type a message in Word consisting of the following:
1) An initial intro to make the recipient read the rest of the message like this: “Dear Sir/Madam, Though I am not writing to you regarding your property vacancy, this message concerns a matter likely of even greater importance to yourself.”
2) The briefest possible explanation of what Clause 24 is and the danger it poses to landlords, with an invitation to visit the Summer Budget 2015 – Landlords Reactions page on Property118 for the full information and to download the included spreadsheet. You won’t be able put the page’s URL, just describe where they need to go. Also, your explanation of Clause 24 needs to be sharp and to the point, so it makes them find Property118 and the full information for themselves.
3) A request that they sign the petition. Again you can’t put its URL, so instead tell them how to find it using Google: “buy to let petition”
4) A request that they pledge a donation towards the legal action to overturn Clause 24. They can find this page via Google by inputting “clause 24 crowd justice”.
5) A recommendation that they arrange a face-to-face meeting with their MP or write to him/her if that is not possible, describing the impact of Clause 24 upon their financial position and tenants.
6) A recommendation that they write to George Osborne and David Gauke also describing the impact of Clause 24 upon their financial position and tenants.
7) A request that they send the above instructions to every landlord, letting agent and mortgage broker that they know.
I recommend that you number and space out the action list so that it is clear.
When your message is typed, go on to Gumtree and bring up a list of all properties/rooms to rent in your county. You can do this by specifying the location and leaving all of the property criteria blank.
Then you simply reply to every single advert, pasting in the message described above. In-paste-out, in-paste-out, in-paste-out. In a couple of hours you’ll have powered through every advert (leaving those repeated by the same advertiser) and sent a message to every landlord/agent advertising on Gumtree at this present moment.
If someone sends you a reply, you will be able follow-up with the actual URLs of the above or further actions (i.e. e-mailing members of the press). That’s because by that stage you’ll be messaging through your regular e-mail app instead of Gumtree itself.
If every member of Property118 were to do this, we could increase awareness of Clause 24 and the campaign exponentially.
Ross McColl
10:54 AM, 28th December 2015, About 8 years ago
Great work Mark and Team. We have pledged. Have a great New Year!!
10:55 AM, 28th December 2015, About 8 years ago
Gareth could you share what you cut and pasted please - making it even easier for all members to follow your lead?
Gareth Wilson
13:59 PM, 28th December 2015, About 8 years ago
Reply to the comment left by "D D" at "28/12/2015 - 10:55":
No problem, this is what I have sent via all of the Gumtree ads for rental accommodation in my county:
"Dear Sir/Madam,
Though I am not writing to you regarding your property vacancy, this message concerns a matter likely of even greater importance to yourself.
Clause 24 of the Finance Act 2015-16 is going to transform the profits of many landlords into losses, by drastically multiplying their tax liability. It will do this by calculating their tax bill not merely from their net profit (as is the case right now), but from their deemed profits measured prior to the deduction of mortgage interest (only 20% of the mortgage costs are given back as an allowance/tax relief). Rents will therefore be forced to rise to compensate for the government taxing profits that do not exist.
You can find out in detail how the tax will work on page 1 of the "Budget 2015 - Landlord Reactions" thread of the website Property118. Here you will also be able to download a highly accurate spreadsheet, into which you can input your own job income, rental income and mortgage expenses to calculate precisely how your own personal tax liability will change as a result of Clause 24.
THE GOOD NEWS IS THAT THERE ARE SOME SIMPLE AND HIGHLY EFFECTIVE WAYS TO FIGHT THE IMPOSITION OF THIS GROSSLY UNFAIR TAX MEASURE:
1) Sign the official online petition against Clause 24 and share a link to it on your Facebook page. I am unable to post the URL in this message, but you can easily find it by typing "buy to let petition" into Google.
2) Pledge a donation towards the Crowd-Funded legal action against Clause 24. Again I cannot share the URL via Gumtree but you can easily find the page by typing "clause 24 crowd justice" into Google. Payment will only be collected from your bank account when the campaign’s target is eventually reached. Please share a link to the Crowd-Justice page on your Facebook stream as well.
3) Immediately contact your local MP and make plain the damage Clause 24 will inflict upon your finances and to your tenants. The most effective way to do this, is by arranging a face-to-face meeting at their constituency surgery, during which you can talk your MP through a printout of your resulting finances, taken from the spreadsheet downloaded at Property118 (as mentioned earlier). If for logistical reasons you cannot arrange a face-to-face meeting, please try to support your written correspondence with a copy of these calculated financials.
4) Write to the primary overseers of this change to the tax system, explaining the damage it is destined to inflict. These overseers are George Osborne and David Gauke. I cannot put their e-mail addresses into this message, but you will be able to find them easily using Google or the UK Parliament website.
5) Copy and paste the above instructions into an e-mail and send it to every landlord, letting agent and mortgage broker that you know. At this point you will be able to send URL and e-mail addresses, so please feel free to add them to the above points.
Completing the above tasks is a straightforward and effective procedure, which may further inspire you to a far greater individual contribution to the campaign against Clause 24.
Please help us to help you. Seize the opportunity to act and fight to defend your hard-earned livelihood!"