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Investors challenge controversial clause 24

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%.
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    I have maintained that this is unlawful from the initial announcement, and will support this action with a contribution. Congratulations to Chris Cooper and Steve Bolton.

  • Andrew McCausland

    I don't know which pimply youth in Conservative Central Office came up with this howler, but they need to be sent for immediate retaining. Apart from the basic unfairness of the whole thing, turning all business accountancy rules on their head, there are 2 issues which the Government seem to have missed:

    1. They need a robust PRS to help deliver the homes required for the increasing population and changing household dynamics. The builders will not be able to deliver all the units required so someone else needs to provide them.
    Step forward the large number of middle earners who want to save for their retirement or bring in a little extra cash per month. They have invested huge sums, mostly renovating poor quality housing and making them habitable again. Without these small investors there are thousands of properties which would remain empty or be below decent homes standard for their tenants.

    2. George Osborne is described as a very political animal yet he has failed to see that this policy attacks some of his own key supporters. Many of the BTL investors are natural Conservative voters - or they were before they faced ruin through this policy. I live in a marginal parliamentary seat and I personally know of a large number of voters who are moving their votes elsewhere as a direct result of this nonsense.

    So well done to Chris and Steve. You will also be getting a contribution from me as well.

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    Congratulations to Chris and Steve for this initiative. I will be signing up.

    However, what appears to have been missed is that this ill-conceived tax change will not be applied to those who buy properties for 'holiday letting'.

    I will be hard hit by the BTL changes, but my partner, who has owned a holiday cottage for 15 years, will still be permitted to claim mortgage interest against her income!!

    The 'holiday let' industry is growing exponentially, especially since the pension changes, and is hugely more damaging in large areas of the Country than BTL i.e. in rural areas, where employment is predominantly agricultural and relatively low paid, and private rented and low(er) cost family homes are essential. However, rural properties are being snapped up for holiday lets and farms are converting outbuildings and 'tied' cottages, and therefore removing them from the market. These properties remain unoccupied for many months each year, yet the Government sees no problem with the owners claiming tax relief on their mortgage interest payments.

  • Brit Sixteen Sixty Four

    Shock Horror landlords want to keep their tax advantages over first time buyers and don't want to pay tax like the rest of society.

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    I completely agree with the group of landlords who are attempting to stop clause 24 . This clause together with the increase in stamp duty are both designed to destroy or seriously damage good landlords who have properties in their own names. This will remove the competition for the larger ones who have their properties in a companies to take over the market unchallenged and further increase their profits to the detriment of the tenants would will find their rents rising even faster. This removal of the 40% tax allowance seems to be another piece of stupidly thought out unfair ,irrational and distasteful nonsense rather like the hot Cornish Pasty Tax that was later withdrawn. I believe that their is a good chance that a Judicial review both should and could agree with us that this is a completely unfair and highly damaging move which could be deamed illegal. I will be supporting them accordingly.

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