1:00 AM, 26th December 2015, About 9 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.
NW Landlord
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Sign Up11:17 AM, 10th March 2016, About 9 years ago
Hi Chris shark
Your situation sounds similar to mine I have quite a few in joint names etc will keep a close eye on developments all so unnecessary has made me angry how this idiots meddling for no reason I also agree general public have no sympathy we are about as popular as Isis in this country it shocks me actually as it is all based on bias media etc
Michael Fickling
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Sign Up12:59 PM, 10th March 2016, About 9 years ago
Reply to the comment left by "Chris Novice Shark Bait" at "10/03/2016 - 10:59":
Thanks please let us all know what you are told.my understanding was/is..that pre existing tax losses accrued are still are effective ( at least untill youve exhausted them).....in offsetting any new "profit" calculation.If not we could end up taxed on a current loss and also effectively taxed again on "old" losses. BIzare ?
Chris Novice Shark Bait
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Sign Up13:18 PM, 10th March 2016, About 9 years ago
Reply to the comment left by "michael fickling" at "10/03/2016 - 12:59":
Hi Michael. I concur. Previous losses are allowed but practically rendered ineffective. They could save one or two of us who have fallen out of the rocky boat, but only if someone throws a life belt pretty smartly.
My accountants sent me an article and here is the link but I suspect you may need to subscribe to access it.
http://www.taxation.co.uk/taxation/Articles/2015/09/01/333612/squeeze-buy-let
I have read it and it is in accountant speak but for some reason they thought it may help me and are now charging accordingly!!!!
Good luck to all. Our fate may lie in the temperature of the water. lets heat it up.
Chris.
Michael Fickling
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Sign Up16:44 PM, 16th March 2016, About 9 years ago
For attention of Ros and others leading the judicial review.>>>>>
As i read it those of us who have built up large losses over the years will not be abe to make any use of those carried forward losses due to the "least of three" calculation applying under C 24. So we are effectively robbed of the real money we have put in ..in my case 100k plus and i know many others are in the same boat. This is extremely unfair and as i read the new formula there is no way we will ever effectively get the benefit of those very significant losses.This is something effectively akin to theft and should form an important part of our case as it makes the thing very much effectively post dated....ENDS,
Michael Fickling
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Sign Up17:09 PM, 16th March 2016, About 9 years ago
Also for Ros and others>>> I note that the Governments own policy paper on rhe clause itself states QUOTE>>>"..it is not expected to have a significant effect on house prices.."...NO doubt during the hearing..if there is one... the gov. barristers will attempt to suggest landlords are driving up house prices !!..They cant have it both ways?? so having a copy of that statement to beat them with would be extremely useful. Appreciate you may already have same in mind and flagged. We do have a draconian measure inflicted on landlords which they ..the gov.themselves state will not have any significant effect on house prices ??
Dr Rosalind Beck
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Sign Up17:15 PM, 16th March 2016, About 9 years ago
Reply to the comment left by "michael fickling" at "16/03/2016 - 17:09":
Hi Michael.
I think this is one for Chris and Steve. I don't understand the 'least of three' calculation. Or if AL is reading, he could explain it. I'm not sure if the issue of losing the right to offset losses has been included or not in the legal case. What may or may not be used is very selective, so we'll have to see what comes back next. Sorry to hear about your predicament. This whole thing is a disgrace and a dark chapter in the Tory Party's history.
Michael Fickling
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Sign Up18:06 PM, 16th March 2016, About 9 years ago
Reply to the comment left by "Ros ." at "16/03/2016 - 17:15":
The "allowance" we finally end up with under the clause is the least of three things....not just automatically 20% of finance interest. So for many of us..in a break even or current loss scenario our actual "allowance" will in many cases be ZERO...not even 20%.
Landlord Lucan
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Sign Up18:21 PM, 16th March 2016, About 9 years ago
Reply to the comment left by "michael fickling" at "16/03/2016 - 18:06":
Hi Michael.
I'm just trying to pick up the thread here, and so may have missed a link somewhere. Would you (or anyone else who knows) mind posting a link to the source document where this 'least of three' rule is explained, please?
Many thanks,
LLL
Michael Fickling
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Sign Up18:38 PM, 16th March 2016, About 9 years ago
Reply to the comment left by "Landlord Lucan" at "16/03/2016 - 18:21":
Yes if you actually read the clause the allowance you are given is the LEAST of three possibles.In other words it is not automatically based on your finance costs at all. What osborne has done is create three possibles and say that whichever of the three gives the smallest allowance fig is the one you must use. One for example is based on profit.SO..if you havent made a profit..then that fig is likely to be the least....therefore if youve made a loss....you have no allowance,,ZERO. Looking at various comment particularly media..this is often missed..its there in the clause if you read it...and once again it effectively hits hardest those making the least or running at an annual true loss. So post full implementation... many of us will not get even a 20% allowance at the end of the tax calculation..we will get zero.
Lisa S
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Sign Up18:44 PM, 16th March 2016, About 9 years ago
We are all caught up today with the latest from GO, but I think this may be of interest.
Apparently the EU complaints 'dept' will only investigate or take action if an individual person makes a complaint.
My partner's nephew (with whom I had a chat over the weekend) has taken HMRC to the EU (re off shore VAT) and appears to be winning.
He has sent me this email:
Here is that link for Lisa
http://ec.europa.eu/atwork/applying-eu-law/make_a_complaint_en.htm
State Aid is governed by Article 87 and 88 of the EU Treaty
Article 87 (1) states
"1. Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market."
That would apply to Lisa's situation.
The EU publishes lots of useful information
http://ec.europa.eu/competition/publications/state_aid/national_courts_booklet_en.pdf
There are also issues relating to discrimination and unequal treatment
See here :
http://ec.europa.eu/taxation_customs/taxation/individuals/rights_en.htm
I enclose my complaint to the EU which you can use as a guide (for format)
Happy to assist if Lisa has any questions.
The important thing is to explain the breach of EU law in the complaint
I have not enclosed his particular complaint (78 pages) as I think it should not be on this public forum, but am happy to send it to any of our known forum members..
I think this is all being covered by the Judicial review, but it may be an idea to contact the EU privately. I will certainly be investigating the links and if appropriate will be submitting a complaint.