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Landlords secure £50k for legal challenge over B2L tax changes

Estate-Agent-To-Let-Buy-Sign-700.jpg

Two landlords seeking to fight Government plans to raise taxes on buy-to-let investments have raised more than £50,000 in less than 10 days.

Private landlords Chris Cooper and Steve Bolton launched a campaign via crowdfunding website Crowd Justice on 26 December, and have already secured the support of more than 740 donors.

The pair hope to secure a judicial review of specific clauses of the Finance Act 2015, through which the Government installed changes which prevent landlords from being able to offset mortgage interest costs against rental profits before tax is calculated.

The National Landlords Association has previously warned that the reforms “could add billions to rents”, while a parliamentary petition to scrap the changes launched in the summer has secured 47,497 signatures.

The pair are arguing for the review on the basis that the reforms would leave landlords alone in being unable to offset costs against their income before being taxed on their profits.

They say: “The Summer Budget changes this very fundamental and important business principle.

“However, it only does so in a way that just discriminates against individual buy to let business owner-operators, who have mortgages/finance costs.

“As a result of this change, many thousands of people will find themselves being taxed on loss-making buy-to-let properties, see massive increases in the percentage of tax payable and many will find that they will be pushed upwards into a higher tax bracket, even though they may well not be making a single penny of extra profit!”

The landlords hope to submit a “pre-action protocol letter” to argue their case to the government this month, with a formal application for judicial review later this year.

The Government would then have 21 days to respond to the application before a court decides whether it is granted.

If approved, a hearing would then be scheduled by the court, after which a ruling would be made.

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  • Brian Hall 4th January 2016 at 10:20 am

    Wikipedia states:

    “In economics and in public-choice theory, rent-seeking involves seeking to increase one’s share of existing wealth without creating new wealth. Rent-seeking results in reduced economic efficiency through poor allocation of resources, reduced actual wealth creation, lost government revenue, increased income inequality, and (potentially) national decline”.

    Not before time, the government is taking action to rein the buy-to-let, rent-seeking market.

    It has taken a softly softly approach, by telegraphing its intentions. Sensible landlords should take note, sell up and bank their profits (after paying capital gains tax of course).

    The nation is creating trillions of pounds in future housing benefit demands from those excluded from homeownership for life. Action is long overdue. If some with a vested interest in rent-seeking push back against this change, then the government has other levers it can pull. The effects of these could be brutal and it doesn’t need to telegraph its intentions next time.

    Perhaps it is time that landlords realise the harsh realities of running a real business that adds value to the economy and does not disadvantage the taxpayer.

    • Mike McKenzie 4th January 2016 at 1:37 pm

      BH You misunderstand the term ” rent-seeking” it has nothing to do with renting an asset.
      http://www.econlib.org
      Rent seeking” is one of the most important insights in the last fifty years of economics and, unfortunately, one of the most inappropriately labeled. Gordon Tullock originated the idea in 1967, and Anne Krueger introduced the label in 1974. The idea is simple but powerful. People are said to seek rents when they try to obtain benefits for themselves through the political arena. They typically do so by getting a subsidy for a good they produce or for being in a particular class of people, by getting a tariff on a good they produce, or by getting a special regulation that hampers their competitors. Elderly people, for example, often seek higher Social Security payments; steel producers often seek restrictions on imports of steel; and licensed electricians and doctors often lobby to keep regulations in place that restrict competition from unlicensed electricians or doctors.

      • Brian Hall 4th January 2016 at 4:41 pm

        My purpose in using the term rent-seeking was entirely valid.

        The Wikipedia item I quoted goes onto say “Attempts at capture of regulatory agencies to gain a coercive monopoly can result in advantages for the rent seeker in the market while imposing disadvantages on (incorrupt) competitors.”

        I see landlords and private purchasers as being in ‘competition’ for the limited supply of properties.

        Landlords have an unfair advantage in terms of interest only loans, less rigorous underwriting and various tax breaks. The taxpayer is also subsidising their business model with billions in housing benefits and this amount will rise exponentially when ‘generation rent’ retires.

        Landlords’ activities (buying lots of properties and holding onto them) also pushes up prices, which have to be covered by higher rents, which further disadvantages prospective homebuyers.

        In this context the government is taking action to create a more level playing field by disassembling these advantages and reducing profitability where landlords are adding little or no real value.

        The response from landlords is usually ‘we will raise rents’. This threat is credible as they own so much property. However, an ever expanding private rental sector will cripple the economy.

        The article revealed that landlords are now banding together to scupper government plans to make the market more competitive. This is a political manoeuvre by a privileged minority. They are aiming to maintain anti-competitive benefits and subsidies for themselves through the political arena.

        It is a perfect example of rent-seeking. The fact that landlords charge ‘rent’ is purely coincidental.

        • Mike McKenzie 6th January 2016 at 4:25 pm

          BH. The only Rent seeking you identify is housing benefit and this is a subsidy to the tenant, a separate economic actor, and I don’t believe this is the forum for a welfare “rent seeking” debate!
          Landlords do not have an advantage with interest free loans, not all landlords have loans and if they do this is a business cost. If a landlord owns commercial property the cost of funding is a business cost just as it will remain for corporate residential landlords, or any other business.
          With regard to underwriting advantages, that’s a function of the lenders risk assessment.
          Landlords don’t push up the price of property, its the lack of supply that pushes property prices up. If all landlords sold their properties what happens to the tenants? You would still have the same number of households i.e. demand, and the same number of housing units i.e. supply.
          There seems to be an assumption in your argument that everyone wants to be an owner occupier or possibly in long term social housing. But this is not the case some will regard renting as a temporary state for careerer assignments, postings, short-term contracts etc. and some just like private renting.
          Finally, landlords by their numbers cannot be a monopoly, there are too many players in competition for this to be possible, rents are set by the market. As for rents rising with the new tax proposals, this would not depend on the landlord but the supply of rented property and the ability, i.e. the demand price, of the tenant to pay.
          As I said, you misunderstand the term “Rent seeking”.

    • Steven Balmer 5th January 2016 at 11:48 am

      Brian, you are assuming that everywhere in the country has the same problems and therefore the same solutions should apply. London allowance has created this issue and by skewing the available rents and staving off long overdue downward pressure on rents payable to Landlords in and around London. Keep government manipulation out of free markets and there will be better results. For a Tory Government to pass a national law which will negatively affects my area, which has a declining population, while ignoring decades of under investment out with the capitol is simply ignorant to half the country’s problems. I do not see why they reduce tax payable on properties over £750k from 12% to 3%, or allow large portfolio holders exemptions? If tax is to be an equaliser, why create a multi tier economy then protect the wealthiest – frankly it is all just elitist bullshit policy making.

  • Chris Hulme 4th January 2016 at 10:19 am

    It was always going to happen, and rightly so. The weight and depth of feeling behind this motion is much larger than the Government anticipated. The potential funding behind it larger still. A JR will hear the legal points argued in detail, something that must be allowed to progress.