In the Financial Act 2015, the government included new clauses which mean that buy-to-let landlords will no longer be able to offset their mortgage costs against their rental income before paying tax on their profits – effectively, an increased tax bill from HMRC.
Steve Bolton and Chris Cooper, two private landlords, aim to secure a judicial review of these changes on the grounds that only buy-to-let landlords will be affected by the new legislation – in terms of not being able to offset costs against income before paying tax on profits.
The proposed changes are going effect both UK and UK non resident landlords.
As reported by ‘Mortgage Strategy’, they say:
“The Summer Budget changes this very fundamental and important business principle. However, it only does so in a way that just discriminates against individual buy to let business owner-operators, who have mortgages/finance costs. As a result of this change, many thousands of people will find themselves being taxed on loss-making buy-to-let properties, see massive increases in the percentage of tax payable and many will find that they will be pushed upwards into a higher tax bracket, even though they may well not be making a single penny of extra profit!”
This month they intend to deliver a ‘pre-action protocol letter’ to the government, followed by an official request for a judicial review a few months later. The process obligates a reply within 21 days and then a court either grants or denies the review. The timings of the hearing and any subsequent ruling are decided by the court.
In order to fund the substantial legal costs, Bolton and Cooper used Crowd Justice (a crowd funding website) to establish a money raising campaign on Boxing Day 2015. Remarkably, by the 4th January, 740 people had shown their support with donations totaling £50,000 – and the figure continues to rise.
They are not alone in their condemnation of the increase in buy-to-let landlord tax. A petition seeking to abolish the changes has gathered 47,497 signatures since it was set up in the summer. If it reaches 100,000 then the issues will be up for discussion in parliament. The Chief Executive of the National Landlords Association, Richard Lambert, wrote an open letter to George Osborne before the changes were even announced, expressing concern about their impact on rent costs, saying, “Landlords would be left with no other option than to recoup their increased costs through higher rents.”
The government’s response:
“By unifying the treatment of finance costs for all individual landlords, the Government is reducing the distortion between property investment and investment in other assets, and reducing the advantage landlords may have in the property market over ordinary homebuyers.”
If Bolton and Cooper’s judicial review request is granted, then the final decision will be down to the courts.
