A group of landlords and property investors have mounted a legal challenge to the Government’s proposals to increase tax on buy-to-let investments and reached their initial £50,000 crowdfunding target in just a matter of days.
Private landlords Chris Cooper and Steve Bolton set up the crowdfunding page on Crowd Justice on Boxing Day and so far more than 600 landlords have contributed. If the group’s application for a judicial review is successful, a new fundraising phase will be launched.
The group is hoping a judicial review will overturn the controversial “Clause 24” of the 2015 Finance Bill, in which the Government introduced plans to limit the amount of tax relief landlords can claim to the 20% basic rate, regardless of the tax band they fall into. A judicial review is a legal process in which a court reviews legislation or administrative decisions.
Calling it the “Alice in Wonderland Tax Grab”, the group said: “The Finance Act 2015 includes Clause 24, which overturns a fundamental financial business principle, where income less costs equals profit. The current Government sees fit to change this tried, tested and proven commercial formula.
“In simple terms, the Government believe that it makes complete sense to tax property owners on that part of the rent that has been paid to the lender as mortgage interest, as if that money was still in the property owners’ bank account.”
The Government has repeatedly referred to the term “level the playing field” when comparing owner occupiers and property investors but the crowdfunding group point out that owner occupiers already have a number of tax advantages compared to investors. These include:
- Owner-occupiers pay zero Capital Gains Tax when they sell their property, whereas owners of rental accommodation pay between 18% and 28% capital gains tax.
- Owner-occupiers have no regulations or costs associated with fire, gas and electrical safety and certification, licensing and energy performance certificates, whereas owners of rental accommodation have financial and/or legal obligations relating to more than 200 different regulations and laws. Failure to comply can result in imprisonment and substantial financial penalties.
- Many owner-occupiers can buy property with a deposit of just 5% to 10% and access lower interest rates, compared to 20% to 25% deposits and higher interest rates for buy-to-let borrowers.
- Owner occupiers can benefit from the Rent a Room scheme, which enables them to earn £4,250 a year (£7,500 from April) tax-free from renting out a room, compared to paying tax on rental profits of between 20% and 45%.