A legal challenge to the buy-to-let mortgage interest relief tax change (Clause 24) will receive an HMRC response by 16 March 2016
From 2020, landlords will no longer be able to deduct the cost of their mortgage interest as a business expense from their rental income, when they calculate the tax due. This will add their full rental income to their other income, perhaps pushing them through the next tax band. So tax will be paid on turnover rather than profit, meaning tax could even be due on non-existent income. For some higher-rate taxpayers, mortgage costs above 75pc of rental income will make their BTL investments loss-making.
Buy-to-let landlords, many of who have invested their life savings into their rental properties as part of their pension pots, are both bewildered and angry at the Chancellor’s shock move. Many suspect the move is part of a Tory government drive to both favour home ownership over renting, whilst at the same time move tax advantages of property investing to large-scale from the small-scale landlord.
Landlords Steve Bolton and Chris Cooper are leading a legal challenge in an attempt to bring about a judicial review of Chancellor George Osborne’s mortgage interest relief withdrawal, which will be on a sliding scale over 4 years.
Chris Cooper is a modest investor and part-time landlord who is using buy-to-let as part of his pension, whereas Mr Bolton, who says he owns around 20 residential and commercial properties, is also the founder and owner of Platinum Property, a buy-to-let training franchise whose members they claim own portfolios worth in total around £200m.
Omnia Strategy, founded and chaired by Cherie Blair QC, the wife of Tony Blair, has been appointed to represent the landlords’ interests.
The application has been filed and signed off by Cherie Blair which leaves HMRC and the Treasury until March 16 to respond with an “Acknowledgement of Service”. This must set out the grounds on which the departments intend to contest the challenge.
The challenge will argue that the Tory’s tax move flouts “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”.
Mr Cooper and Mr Bolton set up a crowdfunding page via website Crowd Justice on Boxing Day and in January had raised just over £50,000 from 740 supporters.
A statement from the landlords, posted on Facebook, says:
“We expect the government to respond aggressively.
“We are hoping for a positive result but are mindful both that judicial review proceedings are inherently difficult and also that, even if we win, the government might introduce changes or new measures that are more defensible legally but still unattractive and problematic for hard-working private landlords.”
A Facebook page has been set-up to follow these events – click here
Up-date on Clause 24 Legal challenge – https://t.co/j1ezatzrD4
— LandlordZONE (@LandlordZONE) March 8, 2016