Two landlords’ legal challenge of Clause 24 of the Finance (No. 2) Act 2015 will receive a response from HM Revenue & Customs (HMRC) by 16th March 2016.
Under the clause, landlords will not be able to deduct the cost of their buy-to-let mortgage interest as a business expense from their rental income by 2020. This will mean that their rental income will be added to any other income, potentially pushing them into the next tax band.
Therefore, tax will be paid on turnover, not profit, meaning that tax could be due on non-existent income. For some higher-rate taxpayers, mortgage costs above 75% of their rental income will mean they make a loss on their buy-to-let investment.
Landlords’ Challenge of Tax Relief Reduction to Receive Response from HMRC
The clause, announced by Chancellor George Osborne in the 2015 Budget, has received criticism from buy-to-let landlords, who have often invested in property to boost their pension pots.
The measure is part of the Government’s plan to turn generation rent into generation buy. Meanwhile, some believe that the Government is favouring large-scale investors over smaller private landlords.
Landlords Steve Bolton and Chris Cooper are leading a legal challenge in an attempt to bring a judicial review of the reduction in mortgage interest tax relief, which will be gradually imposed starting in 2017.
Cooper is a modest investor and part-time landlord, who is boosting his pension through buy-to-let, while Bolton owns around 20 residential and commercial properties, and is also the founder and owner of Platinum Property Partners, a buy-to-let training franchise.
Cherie Blair’s Omnia Strategy has been appointed to represent the landlords.
The application has been filed and signed off by the firm, which gives HMRC and the Treasury until 16th March to respond with an Acknowledgement of Service. This must detail the grounds on which the departments intend to contest the challenge.
The challenge will argue that the Government’s tax change 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”.
The landlords have set up a crowdfunding page, which had raised just over £50,000 from 740 supporters in January.
A statement from the landlords 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.”1
We will keep you updated on the landlords’ case and continue to provide information for landlords on all issues affecting the buy-to-let sector.
1 https://www.facebook.com/clause24/posts/1107773035932366
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