News
Date set for court battle over landlord tax
Monday 12th September 2016
Landlords taking the government to court over the changes to tax relief have had a date set for their hearing in early October. The buy-to-let landlords are seeking a judicial review over the proposed 'tenant tax'.
The changes (otherwise known as Clause 24) proposed by the former Chancellor, George Osborne, in his summer budget on 8th July 2015, restricts the finance cost relief for individual landlords. Currently they are able to offset all their finance interest against their rental income, before calculating their rent profits and therefore their tax bill. The government has proposed to change this practice and require landlords to pay tax on part of their turnover. By 2021, it will still be possible to get a deduction for finance interest, but it will be capped at 20%.
The rules apply to a UK resident individual that lets residential properties in the UK or overseas; a non-UK resident individual that lets residential properties in the UK; an individual who lets such properties in partnership; and the trustee or beneficiary of trusts liable for income tax on the property profits. Landlords of furnished holiday lets, UK resident companies and non-UK resident companies will not be affected.
The finance costs that will be restricted include interest on mortgages, loans (including loans to buy furnishings) and overdrafts. Other costs affected are alternative finance returns, the fees and any other incidental costs for getting or repaying mortgages and loans, and discounts, premiums and disguised interest.
According to information supplied by HMRC, landlords will be able to deduct 75% of finance costs from rental income in 2017/2018 and use a 25% basic rate tax reduction. This becomes 50% finance costs deduction and 50% of basic rate tax reduction in 2018/2019, then 25%/75% before reaching 0% deduction of finance costs and 100% basic rate tax reduction in 2020/2021.
Soon after the plans were announced, landlords began to campaign against the change and a petition was launched to scrap the proposal and received over 46,000 by December 2015.
Despite numerous objections, the Finance Committee gave Royal Assent on 18th November and the new tax restrictions will be introduced on a gradual scale from 6th April 2017. However, many landlords remained concerned over the proposed changes and launched a campaign to raise funding for a judicial review. At the forefront of the campaign was Steve Bolton, founder and chairman of Platinum Property Partners and Chris Cooper, a fellow private landlord.
Since then, the campaign has received over £100,000 in funds via crowdfunding and Omnia Strategy LLP, founded by Cherie Blair, have been instructed to represent the pair in court.
A date has been set for early October.