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.
Private Housing Provider
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Sign Up22:13 PM, 30th December 2015, About 9 years ago
Reply to the comment left by "Chris Cooper" at "30/12/2015 - 15:35":
Hi Chris,
I've just pledged!
Do you know the YPN (Your Property Network) subscription only property magazines? Do you think it will be helpful to get them to circulate the message out too? And if you look at the back of that magazine, there is a list of property meet organisers all over the country who no doubt will have email/contact lists for countless landlords and associates. If we ask them to ask all those property meet to spread the message out for support that might be a big step forward too? Same goes for the petition...
I get the impression the mass media is against us here in general, most media appear to cover the story (if) talking and arguing on behalf of the ill tax treatment to perpetuate the twisted view and angle it is portrayed as the government giving 'relief' when they are not giving anything but taxing us to death by taxing on expenses or losses.
To say it is a relief is a plain lie. It is simply the government taxing on expenses and outlays and worse still the mass media never mention they are also adding this expense of mortgage interest to all other income treating expense as an 'income' to artificially engineer us to a high income tax band payers pushing for a 40% tax on expenses and all other income that should not be taxed 40% in the 1st place. This is a point never addressed in the mass media regarding the Clause 24.
Instead they twist it to say we are fighting for 'relief' of 40% instead of the 20%. What a total lie and misleading way to put this Clause 24 to the nation. No wonder it is hard to get the nation to understand and support this since most of them are fed lies from twisted clever writing of the media.
Chris Cooper
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Sign Up23:21 PM, 30th December 2015, About 9 years ago
Reply to the comment left by "Alan Wong" at "30/12/2015 - 22:13":
Hi Alan, thank you for your support - it is very much appreciated. I think contacting YPN would be a fantastic idea. It would really help our campaign if you could undertake to carry out the initiative you suggest. And even if someone else has already contacted YPN, then it can never hurt to be reminded : ) Regards, Chris.
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Sign Up23:22 PM, 30th December 2015, About 9 years ago
Here are a couple more links that not everyone will have seen, confirming how Clause 24 works (I keep thinking we must be making a mistake somewhere, if only!). In addition to treating mortgage interest as income, it could in theory treat any other finance, for instance to buy a vehicle used in the letting business, or loans to replace appliances, as income. As if this wasn't bad enough, the imaginary increase in taxable income could then render people liable for additional tax if they receive Child benefit or other income related benefits. It just gets worse!
http://www.taxation.co.uk/taxation/Articles/2015/09/01/333612/squeeze-buy-let
http://www.publications.parliament.uk/pa/cm201516/cmpublic/finance/memo/fb39.htm
Laura Delow
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Sign Up8:27 AM, 31st December 2015, About 9 years ago
Reply to the comment left by "Alan Wong" at "30/12/2015 - 22:13":
Had they introduced that relief as follows:-
1) continue to allow the mortgage interest to be deducted from gross rental turnover to arrive at the net profit, then....
2) at the end of calculating your tax rate/liability, then....
3) add back the difference between 20% basic rate & each taxpayer's highest rate eg if a 40% or 45% taxpayer, add 20% or 25% of the mortgage interest back on to the final tax bill & if a 20% tax payer, there's nothing to add back on.
This is just a crude example and would need to be more sophisticated a calculation than this (and would of course collect less revenue) but is much fairer than the current method & would avoid people being taxed on losses and/or lose child benefit or their personal allowance or pushing them fictitiously in to a higher rate tax bracket.
Chris Novice Shark Bait
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Sign Up14:12 PM, 31st December 2015, About 9 years ago
To Chris Cooper & Steve Bolton. Many thanks for your efforts which are to be both applauded and supported. We have pledged. No issues with debit card. Will disseminate the news.
Private Housing Provider
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Sign Up16:39 PM, 31st December 2015, About 9 years ago
Reply to the comment left by "Laura Delow" at "31/12/2015 - 08:27":
From my understanding that is not how they are going to implement the new treatment they're bringing out. They're going to add the 'full' amount of interest to all of our other 'income(s)' to come up with an artificially inflated income which most of it is made out of 'outgoings' classed as income.
This unfairly make a lot of us all of a sudden 'high band' income tax payers to 40%-45% on those income and expense combined now. That is how twisted this unlawful and discriminatory tax treatment is.
No other tax is calculated like this before in the UK or now for any sector apart from this tax grab only imposed to private rental housing providers.
Chris Cooper
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Sign Up10:34 AM, 1st January 2016, About 9 years ago
Telegraph: "Buy-to-let tax raid: 600 landlords donate £42,000 to fund judicial review".
http://www.telegraph.co.uk/finance/personalfinance/investing/buy-to-let/12074893/Buy-to-let-tax-raid-600-landlords-donate-42000-to-fund-judicial-review.html
Laura Delow
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Sign Up11:27 AM, 1st January 2016, About 9 years ago
Reply to the comment left by "Alan Wong" at "31/12/2015 - 16:39":
I agree with you. My comment you replied to was stating that on introducing the restriction of tax relief to 20%, it would have been fairer doing it the way I described.
Sue Wall
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Sign Up14:02 PM, 1st January 2016, About 9 years ago
Reply to the comment left by "Angela Bryant" at "26/12/2015 - 07:33":
Happy New Year. I too have pledged and ALL landlords should give their support. I have a number of high quality student HMO s I would think that universities will be affected because students need good accomodation and there will be a lack of supply in many cities if landlords are forced to sell or raise rents in order to survive. This is apart from all the maintenance contractors ,local shops , clubs and other groups also set up to provide student services I will share this initiative and encourage all landlord associations to pledge and support. Sue
Chris Cooper
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Sign Up14:10 PM, 1st January 2016, About 9 years ago
I wonder if people think that making a donation might make them visible?
It is probably worth emphasising that all donations are anonymous. Neither Steve, nor I, are able to discover who has donated. Any communication with donors, e.g. email updates, is made by Crowd Justice, who have a legal duty, under the Data Protection Act, to keep the information secure.
Regards, Chris.