Posts with tag: Finance Act

No Judicial Review of Section 24 Rules for Landlords

Published On: October 7, 2016 at 8:46 am

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Yesterday, a judge ruled against a judicial review of forthcoming section 24 rules for landlords.

Landlords Steve Bolton and Chris Cooper had joined forces to challenge the measure, which was announced in last year’s summer Budget. Chancellor George Osborne introduced the plan to restrict the amount of mortgage interest that buy-to-let landlords can offset against tax.

The Government has provided a guide on how the new tax measures, set to be gradually phased in from April 2017, will affect landlords: /government-guide-tax-relief-changes-residential-landlords/

Bolton and Cooper, who are thought to be unlikely to appeal the ruling, said they were “outraged” by the judge’s decision.

However, they added that although their legal challenge, which was crowdfunded by around £180,000, has come to an end, they will not give up their fight.

Without a judicial review or Government U-turn, the restriction on mortgage interest tax relief to the basic rate (20%) will be phased in from April next year.

Bolton and Cooper argue that the measure means that most landlords will pay extra tax, of 20% or more, on their mortgage interest. They warn that the tax landlords will have to pay could be bigger than their profit, leaving them with losses.

They insist that the real losers of the tax change will be tenants, as many landlords will be forced to put rents up or leave the market.

At yesterday’s hearing at the Royal Courts of Justice in London, Bolton and Cooper were represented by Omnia Strategy, led by Cherie Blair, whose own family is thought to own at least ten houses and 27 flats.

Blair’s legal team argued that section 24 is unlawful on the grounds that the restriction on landlords’ ability to deduct finance costs as a business expense may constitute an illegal grant of state aid to corporate landlords and owners of commercially let holiday homes, and may breach the European Convention on Human Rights.

No Judicial Review of Section 24 Rules for Landlords

No Judicial Review of Section 24 Rules for Landlords

In court, Blair was initially applauded from the public gallery, when she said that the Government was unfairly penalising individual buy-to-let landlords by “singling them out”, while allowing others, such as limited company landlords, to keep their tax perks.

However, Timothy Brennan QC, representing HM Revenue & Customs and the Treasury, said the claim was arguable: “There are cases which justify the courts looking at them in the public interest. This is not one of them.”

After the hearing, Blair said: “The court’s decision that our clients’ legal challenge should not proceed is very disappointing. Steve and Chris, and many others, have dedicated a lot of time and energy into putting forward the best case possible.

“We know the case has been supported and followed with interest by a large number of individual landlords. Many of these landlords now face challenging times ahead.”

She added: “From the outset, the legal process was just one aspect of our clients’ fight against this unfair measure. Together with their impressive and growing coalition, they will continue to engage with the Government, and the legal team wishes them every success.”

In a joint statement, Bolton and Cooper said: “We are outraged by the court’s decision. It has completely missed the opportunity to protect tenants, landlords and the housing market from the disastrous consequences of section 24.

“From April 2017, the negative impact of this previously failed tax experiment from Ireland, where rents increased by 50% over a three-year period, will be felt far and wide. Sadly, it will be tenants who are hit hardest; they are set to see unprecedented rent increases over the coming months and years, which will be a very clear and direct consequence of this ludicrous legislation.

“For many, it will also mean the loss of their homes, because vast numbers of landlords will be forced to exit the market. Hard-working, responsible landlords will have their pension plans in ruins, but the large corporations and the wealthiest in society, who can buy property without the need for mortgage finance, are systematically excluded from this unfair tax policy.”

They look ahead: “Now that the legal route has run its course, we will be focusing 100% of our attention and resources on taking our case more forcefully, more powerfully and more directly right to the heart of the Government.

“Our goal is simple: to abolish this tax or to remove the retrospective nature of it. We will be launching a range of lobbying, media and grassroots activism measures over the coming days and weeks. We will also be encouraging all of our landlords to write to their tenants if they have to increase their rents or sell up, clearly explaining that it is this Conservative tax policy that has forced them into this situation.”

Landlord groups have also spoken out in support of the cause.

The Chief Executive of the National Landlords Association, Richard Lambert, responds to the court ruling: “This decision is ultimately disappointing, not just for landlords, but for the tenants who will see their rents rise as a consequence of the changes to landlord taxation.

“While we have never been convinced that there was a solid enough legal case to overturn George Osborne’s decision, we hoped the courts would be prepared at least to listen to the arguments.

“We congratulate Steve, Chris and the campaign team on their determination, perseverance, and their success in raising awareness and increasing the visibility and understanding of what will be dramatic change to the ability of hard-working people to provide homes for others.”

David Smith, the Policy Director for the Residential Landlords Association, also comments: “Having provided support for this case, the RLA is disappointed it will not progress to a full judicial review.

“The campaign to seek changes that will address the more difficult aspects of recent tax reforms to the private rented sector must now focus on a political path.

“The Autumn Statement next month provides an important opportunity for the Government to make changes that will support the development of the new homes to rent the country desperately needs.

“The RLA has already met with Treasury officials to discuss the issue, and it will continue to lobby for changes that are good for tenants and landlords, whilst recognising the Government’s limited financial room for manoeuvre.”

The Government’s Guide to Tax Relief Changes for Residential Landlords

Published On: July 20, 2016 at 9:35 am

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Ahead of the phased introduction of tax relief changes for residential landlords in April 2017, the Government has released a guide that explains how the restriction will affect you.

As of April next year, the amount of income tax relief that landlords can claim on residential property finance costs will be cut to the basic rate of tax.

The changes

These changes will affect you if you let out residential properties as an individual, or in a partnership or trust.

The reduction will change how you receive relief for interest and other finance costs, and will be gradually introduced over four years from April 2017.

Under the new rules, finance costs will not be taken into account to work out your taxable property profits. Instead, once the income tax on property profits and any other income sources has been assessed, your income tax liability will be cut to the basic rate. For landlords, this will be the basic rate value of your finance costs.

The Government's Guide to Tax Relief Changes for Residential Landlords

Who will be affected? 

You will be affected by the changes if you are a:

  • UK resident individual that lets residential properties in the UK or overseas
  • Non-UK resident individual that lets residential properties in the UK
  • Individual who lets such properties in partnership
  • Trustee or beneficiary of trusts liable for income tax on property profits

All residential landlords with finance costs will be affected, but only some will pay more tax.

You won’t be affected by the introduction of the reduction if you are a:

  • UK resident company
  • Non-UK resident company
  • Landlord of furnished holiday lets

If you operate as any of the above, you will continue to receive relief for interest and other finance costs as usual.

What does the restriction include?

The finance costs that will be restricted include interest on:

  • Mortgages
  • Loans – including loans to buy furnishings
  • Overdrafts

Other costs affected are:

  • Alternative finance returns
  • Fees and any other incidental costs for getting or repaying mortgages and loans
  • Discounts, premiums and disguised interest

If you take out a loan for both residential and commercial properties, you will need to use a reasonable apportionment of the interest to work out your finance costs for the residential properties, as only the finance costs for the residential property business are restricted. This also applies if your loan was taken out partly for a self-employed trade and partly for residential property.

The introduction 

The changes will be phased in gradually from 6th April 2017 and will be fully in place from 6th April 2020.

As of April next year, you will still be able to deduct some of your finance costs when working out your taxable property profits during the transitional period. These deductions will be gradually withdrawn and replaced with a basic rate tax relief reduction.

You will still be able to use some of your finance costs to work out your property profits and use your remaining finance costs to work out your basic rate tax deduction as follows:

Tax year

Percentage of finance costs deductible from rental income

Percentage of basic rate tax reduction

2017-18

75% 25%

2018-19

50%

50%

2019-20

25%

75%

2020-21 0%

100%

Other implications of the changes 

These new rules mean that the way taxable income is calculated will change, and that could have other implications for some. For example, if you or your partner receive child benefit and your income is over £50,000, the high income child benefit charge may apply.

These changes were announced in the summer Budget 2015 and are contained in Finance (No. 2) Act 2015, as amended by Finance Bill 2016.

NLA to donate £10k to Financial Judicial Review

Published On: June 9, 2016 at 3:31 pm

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The National Landlords Association is to donate £10,000 to assist the Judicial Review against the Government’s decision to remove Finance Costs for individual buy-to-let landlords.

It is expected that NLA CEO Richard Lambert will make the announcement today at the Tenant Tax Summit.

Finance Cost Removals

Announced in last year’s Summer Budget, the removal of Finance Costs will be introduced in 2017 as part of the Finance Act. This will limit the rate of mortgage relief to the basic rate of income tax (20%), for all landlords, regardless of their existing tax bracket.

Unsurprisingly, this has been widely criticised and as such, Chris Cooper and Steve Bolton, two property business owners, launched the Judicial Review.

Up until now, the National Landlords Association, had chosen not to donate to the campaign that it did not believe that the campaign could ultimately be successful.

NLA to donate £10k to Financial Judicial Review

NLA to donate £10k to Financial Judicial Review

Changing mind

Mr Lambert noted, ‘we have yet to see an argument which would convince us to change our mind about the Judicial Review’s chances of success, but we have to recognise that there is always the possibility that we may be wrong. For all the humble pie I would have to eat, I for one would be quite happy to be proved wrong on this one, so as a goodwill gesture to the campaign in recognition of our shared aim of fighting for landlords, the NLA will donate £10,000 to the campaign fund.’[1]

‘The NLA is committed to continued lobbying to achieve a political solution to the problem presented by this disastrous government policy and we are hopeful of a positive outcome for the hundreds of thousands of landlords whose businesses are currently in jeopardy,’ he added.[1]

[1] http://www.propertyreporter.co.uk/landlords/nla-donates-to-tenants-tax-fund.html