UK Landlords To Launch Legal Challenge Against New Taxes

by Robert Lee, Tax-News.com, London

29 December 2015

A group representing 250 UK landlords has announced that it will seek a Judicial Review of the Government's planned reform of buy-to-let tax reliefs.

As part of the July Budget, the Government announced that relief for mortgage interest for individual landlords will be restricted to the basic rate of income tax (20 percent). This measure will be phased in over four years, starting from April 2017. From April 2016, the wear-and-tear allowance, which allows landlords to reduce the tax they pay regardless of whether they replace the furnishings in their property, will be scrapped in favor of a new system that only provides relief when furnishings are replaced.

Under proposals announced at the Autumn Statement, a three percent UK stamp duty will apply from April 2016 to purchases of buy-to-lets and second homes that cost more than GBP40,000 (USD59,610). From 2019, the Government will require capital gains tax to be paid within 30 days of the completion of a transaction to dispose of residential property.

As the first step in instigating a Judicial Review, the group has sought a detailed legal opinion from law firm Omnia Strategy. An application for judicial review will be filed with the court in February 2016, after which the Government has 21 days to respond to the application by filing a defense. The application will focus on Clause 24 of the Finance Bill 2015, which the campaign argues could breach human rights and/or European Union law.

Steve Bolton, who is leading the campaign, said: "It's not clear why the Government has chosen to just launch an attack on buy-to-let owner-operators with mortgages. It's a tax from Alice in Wonderland – truly absurd and divorced from real life. Not only is this tax grab unfair, undemocratic, and underhanded, but we believe that it could also be unlawful."

The Institute of Chartered Accountants of England and Wales (ICAEW) told landlord forum Property118: "It is a long established principle of taxation that expenses incurred wholly and exclusively for the purposes of the business are deductible when calculating the taxable profits. Clause 24 of the Summer 2015 Finance Bill contravenes that principle and will result in proprietors of property businesses being liable to tax on a fictitious profit – even if the proprietors really make a loss."

"The tax change does not just affect new borrowings. Landlords with existing borrowings will be affected. Portfolio landlords will be particularly badly hit. As a consequence of the tax change, major changes in the private sector will take place. Some landlords will pass on their increased tax by increasing rents. Others will be forced to sell, as they will not be in a position to pay the extra tax demanded by HMRC. Homelessness will increase as some tenants will not be able to afford higher rents and many will be evicted by landlords forced to sell."

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