Two landlords, Steve Bolton and Chris Cooper, are mounting a legal against the government’s new policy on tax relief for BTL landlords.
The new policy, brought into law in 2015, bans BTL landlords from offsetting the costs incurred in mortgage interest against their profit when they fill in their tax returns. Unsurprisingly many landlords are unhappy with the changes, as these new rules take the radical step of redefining the nature of profit and loss in a way that exclusively affects smaller private landlords. When these rules come into force as of April 2017, some landlords will be forced to pay tax despite operating at a loss for the year.
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Bolton and Cooper are leading the charge, but they have had no problems finding like-minded people to take up their cause. They are working on behalf of 737 campaign supporters, and 250 Platinum Property Partners.
They initially began raising funds on a legal challenge crowdfunding website, and within days they raised their initial fundraising target of £50,000. Now they have instructed their legal team at Omnia Strategy LLP, famous for being lead by Tony Blair’s wife Cherie Blair MBE QC, to begin proceedings against the government.
The first step is to send a document called a Pre-Action Protocol Letter to HMRC. This demands a full judicial review of the government’s new policy. Government representatives must reply by Wednesday the 10th of February.
The government’s new tax changes have been met with widespread derision, and some are even referring to it as “the Alice in Wonderland tax” because it is so comprehensively detached from the realities of business. Bolton, Cooper and their supporters aren’t the only ones to speak out against these reforms. Private landlords and property industry bigwigs from up and down the country have also expressed their concerns.
Laws that affect landlords and letting agents
The government introduced this new law with the hope that it will create a fairer balance in the property market between landlords who rent out their properties and homeowners who live in them. Many people in the property industry have contended that this is is a flawed thesis, as homeowners do not usually receive taxable income from their homes and, unlike property investors, they don’t pay capital gains tax when they sell up.
Many landlords, including Bolton and Cooper, feel that this tax rule actually makes the playing field less fair, as it will not affect those who have the capital on hand to pay for their BTL properties outright, as well as institutions, corporations, overseas landlords and those who rent out holiday homes. Instead, it penalizes those who can least afford it. It could mean that some landlords will have a tax rate of over 100%, and many fear this will lead to unsustainable rent increases and a lack of supply in the private rented market.
Corporate landlords vs small private landlords
Bolton and Cooper’s legal team believe these rules clearly breach the European Convention on Human Rights, because of the way they benefit huge corporate landlords and penalise smaller private landlords.
Only time will tell if their challenge is successful, but with some of Britain’s best legal minds on their side, and a small army of supporters prepared to dip their hands in their pockets, they surely stand an excellent chance.