Landlords lose legal fight to get Osborne’s tax changes overturned

Landlords are licking their wounds after a Judge yesterday ruled against a Judicial Review of former Chancellor George Osborne’s capping of the amount of mortgage interest that they can offset against tax.

It means that landlords Steve Bolton and Chris Cooper have lost their legal challenge to overturn a measure announced in a Budget.

Yesterday the pair – thought to be unlikely to appeal the ruling –  said they were “outraged” by the decision, which is likely to have consequences for letting agents if, as predicted, landlords desert the market or put rents up.

Bolton and Cooper also said that although their legal challenge – crowd-funded to the tune of over £180,000 – has run its course, they will not give up their fight.

Without a Judicial Review or any government U-turn, the process of capping the amount to 20% will be phased in from next April as planned.

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

They also warn that the only people who will suffer will be tenants, because landlords who stay in the market will have little choice but to raise rents.

Anecdotally, a number of landlords are already selling up ahead of the implementation of Section 24 of the Finance (No 2) Act 2015.

Yesterday’s hearing was at the Royal Courts of Justice in London where Bolton and Cooper were represented by Omnia Strategy, led by Cherie Booth, whose own family property portfolio is thought to include at least ten houses and 27 flats.

Her legal team argued that Section 24 is unlawful on the basis that the restriction on landlords’ ability to deduct finance costs as a business expense may constitute an unlawful grant of State aid to corporate landlords and owners of commercially let holiday homes and may also breach the European Convention on Human Rights.

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

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

Booth said yesterday after the r uling: “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.

“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.”

Supporters included landlord bodies and the Belvoir franchise chain. However, despite the support, many thought that the legal action against something that had been announced in a Budget stood no chance.

Richard Lambert, chief executive of the National Landlords Association, said: “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 a dramatic change to the ability of hard-working people to provide homes for others.”

In a joint statement, losing protagonists 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.

“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 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.”

David Smith, policy director for the Residential Landlords Association, said: “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.”

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9 Comments

  1. Trevor Mealham

    Osborne, Vince Cable and others alike should be banned for life from working in Government situations involving tax and government coffers.

    Our property market is high sprung and currently very vulnerable.

    One has set plan to seriously devastate the accommodation market. Not only taking down housing, portfolio’s, but the jobs around the rental sector.

    The other (Cable) sold off the post office around 1/2 £££value.

    Alike Margaret Thatcher sold off Council Housing cheap without replacing stock. She should have known better as her father was a shop keeper and you can’t sell can’s for 1/2 the price you buy them for.

    We need MP’s with experience in sectors they control and influence that understand how real people live and work and how their actions can trash industry sectors. Not high wage puppets.

    The mortgage offset and impact of lower rated EPC’s on rentals soon to kick in will hard impact the rental sector

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    1. Woodentop

      Wish people wouldn’t hark on about RTB. It provided the ability for homeownership for those in the povety trap, many of the properties were going to cost the local authorities a massive fortune to rejuvenate (1946 to 1955 era) and the revenue raised was supposed to be used to build new ones (not enough finance for a direct replacement but with renovations savings wasn’t going to be far off) … they spent it on themselves instead.

       

      As to the main story …… This will go down in history as the policy of an arrogant chancellor who forgot his party ethos and did it his way, stuff the rest of you. The only way this could ever be overturned is government policy. Over to you Mr Chancellor of the day to put this crime right.

       

      The general public is oblivious to what Sec 24 is, so many landlords haven’t a clue what is fast approaching. Many landlords do it to help with extra income they need or retirement planning and could be classed as hobby landlords. These type of people drop out at the slightest negative that’s put in front of them = sell up, can’t be bothered with the hassel!. This will lead to less stock and we need more. As for tenants just about everyone can see what is on the horizon (except them at this time, but soon to find out) rents will go up, default will go up, repossessions will go up …… Sec 24 is just nonsense and will get even worse if Labour get in with their manifesto for rent freezes, 3 yr protected tenancy etc etc and I mention etc etc because if you think they will stop at that …. get your head out of the sand!

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  2. jeremy1960

    We are used to, and advise, landlords putting rents up by an amount each year to keep apace with the market – over the past 2 years that averagdd between £15 & £20pcm. Last month alone I had 2 landlords demanding increases north of £75 pcm! Will changee affect rents? They already are!

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    1. Woodentop

      add another £100 PCM for the poorest tenants come June 2017.

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  3. Trevor Mealham

    Stamp duty receipts are down 2.5pc to £7.3bn as the reforms made by George Osborne take their toll on the property market.
    Home sales in London produced £3.37bn for the Treasury in stamp duty in the year to March 31, up 11pc on the previous year. This means that the capital now generates 46pc of the England and Wales’ stamp duty receipts.
    Single borough – Kensington and Chelsea – contributed 7pc of the total, with £514m of stamp duty.
    The amount of stamp duty from homes sold for over £1m increased by 19pc from last year to £2.6bn

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  4. mugpunter

    Amusing to see commenters on here crying crocodile tears for renters when really it’s themselves they’re feeling sorry for. You’ve had a lovely run on the backs of a bunch of idiots who thought it was clever to leverage themselves up to the neck to build a property portfolio. A great double dip for some agents – taking a cut when you sold property to these idiots and then another cut when they rented them out. Well, the golden goose is looking close to death. You can mourn it if you like, and you can kid yourselves that the big event will be rents going up, but it’s really an opportunity to make some more sales as these idiots get flushed out of the market. Time for prices to return to the mean. Watch all the high earners who’ve been restricted to renting by over-inflated prices leave the rental sector as they become owner-occupiers. Landlords fantasising about jacking their rents up are in for a rude awakening.

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    1. Woodentop

      You really haven’t a clue, have you? Market is controlled by supply and demand. Short supply and tremendous demand = the tenant is at the mercy of rent increase when the landlord has to cover costs. Many rent because they are prohibited from buying! That is one reason why tenants have had to rent when the choice of mortgage repayments is lower but unlike mortgage rates, landlords have costs in excess of finance companies = rents are higher. Without landlords the streets would be filled with people sleeping on the park bench in tiers. Love them or loath them, they are a necessity.

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      1. mugpunter

        Landlords with sensible leverage won’t have any problems with the new order of things. The over-leveraged and those who have paid high prices for low yields are at the mercy of holding on to good, paying tenants. The supply of such tenants is going to get tighter in a faltering economy with incipient inflation about to eat into their disposable income and job security. No tenant, no ability to cover the mortgage, repossession time. Property goes to another buyer at a new market price reflecting that demand from over-optimistic amateur investors has been closed down. I’ve no problem with landlords per se, just the idiots who thought they were taking part in a one-way bet and were too arrogant to see the social and political backlash coming.

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    2. moneymanager16

      It’s already been happenening, rent increases that is. Granted that different sectors and locations may vary in increase tolerance but when a city is receiving multi billion £ investments there is only one direction that city centre prime apartments will go. In mid ’13 a 59 sqm one bed could be got for around £150k, that’s now north of £200 and rent have gone from £750 to £1000 with plenty of legs left for more.

      Don’t get me wrong, I’m all in favour of owner occupation and feel that the UK market has been skewed but not by domestic landlords. It has instead been skweded by unfettered marketing of new build to a solely foreigh market for investment, occupation or mere speculation.

      The “PRS sector” is certainly not homogenous and contains many tenants who will never have the capacity to own or manage their own home, it’s they who S24 will affect most grievoulsy and I can’t think that any sane, but frustrated home owner could applaud that.

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