The High Court in London has rejected a legal application on behalf of residential landlords for a review of Section 24 of the Finance Act 2015 which will change the way their income is taxed from next year.
The changes, which are due to come into force in 2017, would stop landlords being able to claim buy to let costs, including mortgage interest payments, as a business expense.
Lawyers had argued that Section 24 is unlawful on the basis that it restricts the ability of a landlord to deduct finance costs as a business expense and may also breach the European Convention on Human Rights.
Action group disappointed
An action group, Axe the Tenant Tax, and the UK’s largest landlord organisation expressed disappointment at the decision but campaigner say they will now take the fight to abolish the tax change by putting significant political pressure on MPs and Government.
The group, which is a crowd funded coalition of individuals and organisations who represent more than 150,000 landlords, warned that if the change does come into effect next year it will mean higher rents for tenants. The National Landlord’s Association said it was also disappointed.
‘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,’ said Richard Lambert, NLA chief executive officer.
‘We congratulate 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,’ he explained.
‘This issue has been the focus of the NLA’s lobbying for the past 15 months and, as the UK’s largest representative body for landlords, we are still committed to changing this damaging policy through political engagement and lobbying. We urge all landlords to join us in this fight,’ he added.
Cherie Blair speaks out
Cherie Blair QC of Omnia Strategy LLP, who represented co-claimants Steve Bolton, chairman of Platinum Property Partners, and fellow landlord Chris Cooper, on behalf of the Axe the Tenant Tax said she was disappointed by the decision.
‘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 commented.
‘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,’ she added.
A missed opportunity
In a joint statement, Bolton and Cooper described it as a missed the opportunity to protect tenants, landlords and the housing market from the potentially 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,’ they said.
‘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 explained.
‘Now that the legal route has run its course, we will be focussing 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,’ they added.
They now plan to continue with their campaign to encourage landlords to write to their tenants if they have to increase their rents or sell up, clearly explaining that it is the Government’s tax policy that has forced them into this situation.