Allow Landlords to evict tenants where there are 14 days rent arrears14:34 PM, 1st October 2020
About 3 weeks ago 97
“Section 24” of The Finance Act (No. 2) 2015 isn’t actually a tax change. It is an amendment to GAAP (Generally Accepted Accounting Principles). It changes the way that profit is calculated and then introduces “tax relief”.
Let us be clear what Generally Accepted Accounting Principles are.
If a business has income of £1,000 and has £1,000 of expenses then its profit is zero.
If a business makes a profit then those profits are subject to tax at varying levels depending on the structure of the business and the amount of profit made.
Another generally accepted accounting principle is that if a person borrows money to buy something for personal use they can’t offset the costs of financing that purchase against other income. That applies to pretty much any product you can think of, e.g, a bucket and sponge to clean windows, a computer, a vehicle or a property. However, if a business borrows money to buy any of these things with the intention of generating an income the costs of financing those investments are a legitimate business expense.
Section 24 changes everything, but only for individual landlords. Generally Accepted Accounting Princples are only being amended for individual landlords by Section 24. The legislation does not apply to any other business, not even to incorporated landlords!
When Section 24 is in full force £1,000 of income minus £1,000 of finance costs to purchase income producing assets = £1,000 of profit for private landlords only.
I can probably guess what any sane human being would be thinking when reading this for the first time and I agree. Bonkers isn’t it?
To add to the madness a new tax relief of 20% of finance costs will become available for individual landlords to deduct from the tax bill on their new fictitious profit. Presumably Government will seek to remove this at some point too on the premis that homeowners don’t get the same tax relief! (you’re perfectly normal if you are shaking your head in disbelief at this point)
On 6th October 2016 Section 24 was challenged legally with a permission hearing for a Judicial Review. The grounds were human rights, discrimination and contravention of EU State Aid Law. Permission for a Judicial Review to proceed was denied on all three grounds.
Having sat through the hearing I can understand why. In my humble opinion, nobody addressing the Judge actually fully grasped that Section 24 had nothing to do with tax relief. There was no mention of Generally Accepted Accounting Principles whatsoever!
I thought Cherie Blair was very elequent at explaining why the consequences of Section 24 were unfair. I also though she made a good job of playing to the gallery, the people who had funded her presence of course. The bottom line though was that she failed to achieve what she had been paid to do.
Having got all of that off my chest, you may be shocked to read that I think the refusal of permission for a Judicial Review to proceed could be a blessing in disguise.
If permission had been granted around £600,000 would have been needed to be raised in order to fund the full Judicial Review. That would have been a mammoth task and diverted attention and resource away from lobbying and looking for solutions. Even if the £600k had been raised we would be no further forward and with no more guarantees than we have today.
Many were disappointed because the prospects for a full Judicial Review provided hope. However, as the emotion of disappointment fades over time I think people will realise that a strategy of hope isn’t a good fit for property investors. This is because people like you and me need to feel in control of our own destiny.
So where do we go from here?
Two days after the permissions hearing was declined Property118 made the largest donation to date to Axe The Tenant Tax to date. We hope this will inspire others to commit to contribute to ongoing fundraising. We also wanted to send out a clear signal that we will continue to support positive action to reverse this wicked policy. At the same time though we will continue to help landlords who, like me, want to be in control of their own destiny. This is still possible but there isn’t a one size fits all strategy. For those affected by s24, those of us you who prefer to take control of your own destiny, please see the linked page below …
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