This blog is on law not tax but sometimes I make an exception. You may remember that I did a post last year on the Chancellor’s extraordinary new tax laws for landlords which will start to come into force in 2017.
In a nutshell, it seems that under new rules introduced in the Finance Act 2015, landlords will be taxed on rental income without being allowed to offset their mortgage payments. So if they have a big mortgage they may find that they are being taxed on income they have never effectively had. Some landlords will end up making a loss.
However, this change will not affect all landlords – only ordinary people who have a buy to rent or other mortgage. It will not affect landlords without mortgages, corporations or overseas landlords.
This is a very serious development. If once the treasury start taxing businesses on income rather than profit – this will set a precedent. Who knows when it will end? And why should only ordinary people be affected and not wealthy cash buyers, companies or foreigners?
Landlords doing it for themselves
Two landlords, Chris Cooper and Steve Bolton have decided to do something about it. They have set up a legal team and are proposing to challenge the new law by way of Judicial Review. (Judicial review is a special type of court case where a Judge reviews the lawfulness of a decision or action taken by a public body – in this case the Conservative Government).
To help them fund this, they have turned to the crowdfunding service Crowd Justice, asking for support to help them challenge this ‘Alice in Wonderland tax grab’.
It has been a very successful campaign so far, raising the initial seed funding of £15,000 within a couple of days and they have now raised over £50,000. However to support a complex legal challenge to the government they will need more than that. So the campaign remains active.
Why Section 24 needs to be challenged
I think the government should be challenged on this. Why?
- no business should be taxed on income before deducting legitimate business expenses
- ordinary citizens should not be treated less fairly than corporations or foreigners, and
- this proposal came completely out of the blue without consultation and was not (so far as I am aware) part of their election manifesto
The specific legal grounds for the challenge is that clause 24 may unlawfully breach human rights and/or European Union law.
If you agree that the clause is unfair, particularly if you feel strongly, you should support the campaign.
A dangerous precedent
Many people are feeling smug about the new rules because they don’t like landlords. But maybe the government have deliberately chosen an unpopular class of people to trial these new tax rules?
Taxation on income rather than on profit is a dangerous precedent. If left unchallenged, it may be extended into other areas. Can we risk this? Can YOU risk it?