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.
Julius Caesar
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Sign Up7:59 AM, 29th December 2015, About 9 years ago
Great work guys, I don't post often (work firewall issues) but I've been following everything since the July budget, and I'm so grateful for all the effort that others have gone to.
Personally I've written to (and had varying quality responses from) my local MP Justine Greening, the Chairman of the Conservative Party's Office and Zac Goldsmith.
I've pledged and shared.
Chris Cooper
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Sign Up14:33 PM, 29th December 2015, About 9 years ago
Joint Statement from Steve Bolton & Chris Cooper regarding the Clause 24 legal action:
We are repeatedly being asked three key questions regarding the “Alice in Wonderland” tax grab Judicial Review situation. The following joint statement should clarify our answers to the questions. We welcome questions, comments and feedback, that are both supportive and critical in nature…
The three questions are:
1. Who is behind this action?
2. What are we doing to work with other organisations?
3. What is the likelihood of success?
1. Who is behind this action?
Together, we (Chris and Steve) formally commenced legal process towards a proposed Judicial Review of Clause 24 (C24). The Board of Platinum Property Partners also supported the decision and signed off on a number of matters that could have potentially negative legal, financial and reputational implications for the organisation. This all happened before the campaign went live and any money was pledged.
Prior to this, a huge amount of work had been done by those behind the “Say No To George” petition, which has over 46,000 signatures, the teams and members of Property118 and Property Tribes, the ICAEW, the RLA, the NLA and many other organisations. All have been very positive and proactive in their own ways and helped to move the agenda forward. We applaud and thank anyone and everyone who has played their part, large or small, to move this agenda forward. There are scores of “unsung heroes”, many of whom have worked tirelessly and invested hundreds of hours of time to fight this unfair tax. Chris and I are just small, bit-part players who have come forward to push ahead with a new initiative, when compared to many others who have been working tirelessly for the last six months (and continue to).
As of 1am on Boxing Day, we started to represent a broader group of stakeholders in this action. Namely the 360 (and rising) people and organisations who have contributed over £26,649 in under 36 hours over a bank holiday weekend. We are very clear that we represent those people who have committed funds to this campaign and we must act in accordance with the case we set out on the Crowd Justice page https://www.crowdjustice.co.uk/case/clause24/. Any deviation from this would not be in line with correct principles of corporate governance, to which we are committed towards upholding.
2. What are we doing to work with other organisations?
We started out with, and will continue to have, an ‘inclusive’ approach. Our goal is to build a “property coalition” – bringing together organisations and individuals to fight a common cause, which is Clause 24.
We are aware of other positive actions and activities being considered, or taken by a range of other organisations. Our message is very clear – “let’s work together.”
Dialogue has already started with a number of organisations. We would like to engage with more organisations who support the principle of challenging C24 and who have substantial reach and influence in the sector. If you are one of those people in one of those organisations, or you know someone who is, please ask them to email us so we can start a dialogue: s.bolton@platinumpartners.co.uk. As the old but very wise saying goes…
“None of us is smarter than all of us”
Steve was interviewed by the Guardian newspaper last week (http://www.theguardian.com/business/2015…f-changes) and the point was debated that not many landlords care about this issue, and so why should the government or anyone else. The truth of the matter is that we either need to come together, or just have to sit back and accept – not just Clause 24, but the increasing number of taxes and laws that are going to have devastating consequences if the government continue unchecked with their current direction of travel. The time to act and come together better than we have ever done before is now. Full engagement with C24 is a catalyst and common cause that can unite an industry if we choose collectively to make that happen. The cynics say we have no chance, but nothing was ever achieved with a defeatist attitude from the outset.
3. What is the likelihood of success?
In a legal sense, our chances of success with C24 are slim. However, for many property business owners, this tax will be devastating. There are many stories where people will have their plans for retirement in tatters as a result of this unfair tax. Humanising this angle is one of our goals, and Chris has kindly agreed to share his story with national media this week. This story and more like it, will hopefully start to make more people realise that this tax is unfair, unintelligent and unjust. Facts and figures are helpful, but stories have always been the most effective means of influencing hearts and minds.
We believe, as do our legal team, that the Crowd Justice campaign “Judicial Review of Clause 24” could potentially have benefits even if an application for JR is refused or, if granted, fails. The campaign will:
Raise awareness amongst those landlords who are unaware of Clause 24, or the disastrous effects it will have on them.
Raise awareness amongst those in a position of influence, in the Houses of Commons and Lords, who are also unaware.
Stimulate discussion which will have the likely affect of bringing the Clause 24 topic back onto the Political agenda.
Raise our profile positively in the national media and start to fight against the demonization of the ‘parasitic landlords’, as the critics like to call us.
Make an industry-wide coalition a viable possibility and an idea worth pursuing.
Next Steps..
We have no vested interest in this beyond the ones we make clear on the campaign page. Any questions relating to transparency and potential for conflict will be welcomed and answered openly in the public domain. We have nothing to hide and no hidden agenda.
We plan to answer as many questions as time allows via all social media channels, so please join the conversation and please keep spreading the word.
The funding campaign needs to hit the £50k target within the week, to make a really positive statement of intent, so please encourage others to donate.
Let’s keep the total rising day by day and have all the money in the bank by Friday at midnight latest. Broad engagement with as many people voting with their wallets is the key goal here initially. Please do not fund more than you would be happy to lose, and do so on the basis that you won’t regret the financial loss if the action fails. We, and the lawyers, will do all in our power to make sure that does not happen but it is always better to hope for the best, but plan for the worst. The chances of success are slim but giving up with no hope is not the answer. The spin-off benefits alone listed above, could be worth more than the action itself to us as a community. So please engage as many people as you can and donate.
Further down the road, the idea for a “property coalition” could expand its scope and influence, but that conversation is for another day. For now, our eyes are fixed firmly on the legal challenge to the C24 prize.
We will update everyone via all social media channels on a regular basis.
A massive festive thank you to everyone who is supporting this action.
Steve Bolton and Chris Cooper
Michael Fickling
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Sign Up15:07 PM, 29th December 2015, About 9 years ago
I believe the key to getting the right decision is the way this is put forward. No previous tax has been able to exceed real world profits.Or indeed be applied to a real world loss or break even.
I fail to see how any judicial body can uphold that completely new and flawed "principle". If it were to do so then the state can use a tax to shut down any area of business enterprise at any time it wishes. On that very specific basis the tax is clearly destructive in nature and is a complete departure from any previous tax in that respect AND as it is in effect without limit.(.a straight maths issue ! )..that also is completely new and contrary to all previous taxes. Provided the case is put forward on those very clear and simple principles I think we can be more confident of a sucesful outcome. Basically the state over reaches itself when it uses taxes to destroy enterprise in this very inappropriate way.The danger in these cases I think.. is to create confusion by ranging across too many issues so that the fundamentals... ie these two points are lost in the volume of any case put forward. Provided this focus on the two fundamentals is driven home I think our prospects are good. One might well compare/ contrast to cigarettes..the government heaps tax on them...as they are considered a "bad thing"...however it hasnt gone beyond that and created a destructive tax formula extending without limit and also taxing losses and break evens.
money manager
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Sign Up15:27 PM, 29th December 2015, About 9 years ago
Reply to the comment left by "michael fickling" at "29/12/2015 - 15:07":
Unfortunately, that isn't quite true. I can't remember the name of the name of the case but a failry recent Upper Tier Tribunal heard and rejected a tax payer's appeal in respect of investment bond taxation.
In essence the individual had invested in and subsequenlty withdrew, in two tranches, the entirety of the bond at more or less par. Because of the way the withdrawal form had been completed each withdrawal was aded to his not insignificant income and taxed as such. There is no repair mechanism in statute for the error and the judge used the words that it was "with a heavy heart" that he had to find for HMRC.
That doesn't of course justify the ongoing absence of any repair process nor the validity of the just arguement.
Michael Fickling
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Sign Up16:00 PM, 29th December 2015, About 9 years ago
Reply to the comment left by "money manager" at "29/12/2015 - 15:27":
Mmmhh not sure thats really comparable Mark..but hey we are not judges. Lets just hope..... Here now with this clause is something constructed to actually create a punitive situation. The other you allude to seems more of an oversight or unintended consequence......A big thank you to you Mark and all the many others for all their continuing efforts.
Resistance here is certainly not futile !
Dr Rosalind Beck
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Sign Up16:49 PM, 29th December 2015, About 9 years ago
Reply to the comment left by "michael fickling" at "29/12/2015 - 15:07":
I really like this point, Michael and I will pass it on to the lawyers.
Alex
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Sign Up21:39 PM, 29th December 2015, About 9 years ago
Hi Chris.
I have circulated requests for pledges amongst our members and the wider landlord community we have regular contact with.
One of our members has told me that the Crowd Justice website was unable to accept his pledge and rejected both his credit cards. Is it possible there is a problem that might be preventing others from pledging their support?
(I pledged on Boxing Day with no problem and my pledge has already been taken from my credit card).
Alex
Dr Rosalind Beck
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Sign Up21:46 PM, 29th December 2015, About 9 years ago
Reply to the comment left by "Alex Caravello" at "29/12/2015 - 21:39":
Hi Alex.
Thanks for letting us know. I've emailed Chris to let him know.
And just in case not everyone knows, it is Alex who did the best spreadsheet in town!
Thanks again for that Alex. It has been a truly brilliant contribution for landlords across the country.
Chris Cooper
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Sign Up22:17 PM, 29th December 2015, About 9 years ago
Reply to the comment left by "Alex Caravello" at "29/12/2015 - 21:39":
Hi Alex - thank you for circulating amongst your members and your contribution - and letting me know about this issue. I have alerted the Crowd Justice team. Regards, Chris.
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Sign Up10:06 AM, 30th December 2015, About 9 years ago
Site rejected my creditr card too - and so I used my debit card thinking that was maybe the issue. I then had a rather worrying text follow up saying it has saved my banking details 'for further debits'????