Buy-to-let Landlords taking the government to court to challenge tax relief restrictions will have their hearing at the Royal Courts of Justice on Thursday 6th October.
The group, led by the founder and chairman of Platinum Property Partners, Steve Bolton, and landlord Chris Cooper, seek to overturn former chancellor George Osborne’s decision to restrict the amount of tax relief a landlord will be able to claim on mortgage interest outlined in last year’s summer Budget.
The judicial review of Osborne’s proposals was financed by a crowdfunding campaign which followed a failed parliamentary petition to challenge the proposed tax changes.
Over £100,000 was raised by the pair who hired Omnia Strategy LLP, the law firm founded chaired by Cherie Blair in 2011, to act for them. At the landlord conference named the “Tenant Tax Summit” held in June to discuss the case, Blair claimed that the former Chancellor’s tax changes warrant a judicial review since they “discriminate against landlords according to the European Convention on Human rights.” Also speaking at the event was the Conservative Life Peer and former MP Lord Howard Flight who had written a letter to the Government “Why the Government is wrong to attack buy-to-let.”
Unless the legal challenge is successful, the government’s tax changes will come into effect in April 2017.
Private landlords received £9.3bn in housing benefit payments, almost double the amount a decade ago according to a study published by the National Housing Federation.
This situation is set to deteriorate with the decades long trend of decrease home ownership exemplified by a House of Commons research report published earlier this year which reported that 48 per cent of 25-34 year-olds in England now rent, up from 21 per cent in 2003-04.
The National Housing Federation report found an increase of 42% in the the number of households using housing benefit to pay rent to private landlords since 2008. Housing benefit is paid to households that cannot afford to cover rental costs in addition to essentials such as food, clothes, heating and lighting.
This situation has been exacerbated by stagnation in real middle-income household earnings with the greatest increase in housing benefit claims coming from households with net incomes between £20,000 to £28,000 per year. Furthermore, in 2008 around a quarter of private sector tenants in receipt of housing benefit were in employment, a figure which has risen to almost a half today.
In order to address the crisis in property ownership in the UK both parties have adopted standard policy positions. The Conservatives have signaled a preference for supply-side solutions to improve housing affordability with little detail on easing planning restrictions and tackling construction sector skills shortages. Labour on the other hand have suggested a combination of rent-controls and investment in social housing with few details on the practicability of such proposals.
The National Housing Federation claims that if all those housed in the private rented sector lived in affordable housing, taxpayers would save £1.5bn a year in housing benefit payments. The federation’s chief executive, David Orr has said, “It is madness to spend £9bn of taxpayers’ money lining the pockets of private landlords, rather than investing in affordable homes. Housing associations want to build the homes the nation needs. By loosening restrictions on existing funding, the government can free up housing associations to build more affordable housing at better value to the taxpayer and directly address the housing crisis.”
Despite the pessimism of most young people who voted to remain in the EU in June, there have been some suggestions that Brexit may be good for British renters.
Whether brexit is good or bad for renters depends fundamentally on whether house prices fall relative to the earnings of renters.
Following the referendum result, Zoopla predicted that house prices may fall up to eighteen per cent. KPMG envisages a more modest decline of 5 per cent with London hit harder than the rest of the country. Both cite possible limited future access to the European market which might make British property less attractive to overseas buyers. Others speculate that there will be no house price fall since demand has far outstripped supply over the past few decades. However one ought to bear in mind that over optimism in the Housing market is a constant feature of house price predictions in the UK. Few for example predicted the 2007 sub-prime mortgage crisis and subsequent recession.
The devaluation of sterling might also offset any reduction in the attractiveness of UK property due to exclusion from the single market for international investors.
On the side of earnings; before the referendum, the Treasury warned that Brexit would cut economic growth by 3% to 6%. The TUC also warned that leaving the EU could reduce average earnings by £1976 per year by 2030. However, it is still too early to say whether wage decreases offset house price falls.
Fundamentally the most important cause of Britain’s housing crisis is British government policy, not international investors or the EU. The remedy, liberalization of planning laws and regulation of the letting sector, is opposed by most English and Welsh MPs. It is therefore unlikely that Britain’s decision to leave the EU will improve or worsen the lot of private sector renters.
The Conservative MP for Lewes, Maria Caulfield, secured an Adjournment Debate in the House of Commons to discuss the Government’s actions in relation to letting agent fee capping.
Miss Caulfield reported that research from Seaford and Lewes Citizen’s Advice Bureaux which found that letting agent fees can range from £175 to £922 in addition to an average of a six-week rent deposit.
Also participating in the debate was Kevin Hollinrake, co-founder of Hunters Estate Agents and the Conservative MP for Thirsk and Malton who added that agents may choose to decline tenancies to prospective tenants with inferior credit histories if fees were scrapped rather than capped.
The Conservative MP for Thirsk and Malton, Kevin Hollinrake also contributed to the debate adding that letting agents rely on fees for their income, which would probably be obtained from higher rents or landlord’s costs if such fees were prohibited.
Letting agent fees are attracting increasing political attention as the housing crisis deepens with reports of many letting agents insisting on six month rotating tenancy agreements against the wishes of many landlords or tenants in order to charge additional contract renewal fees.
The Government considers current regulation of private sector letting and managing agents adequate according to a recently published House of Commons Research note.
According to the briefing there is “no overarching statutory regulation of private sector letting or managing agents in England or any legal requirement for them to belong to a trade association, although many letting and managing agents submit to voluntary regulation” despite the rapid growth in the private rental sector over the past two decades.
Furthermore, the Government plans to improve the quality of the rental sector by increasing the range of powers available under consumer protection legislation and has no intention of introducing regulation.
The Government does not intend to introduce regulation in the sector and has pointed instead to the existing range of available powers under consumer protection legislation. However, an amendment to the Enterprise and Regulatory Reform Act 2013 enabled the Government to require agents to sign up to a redress.
This comes as private motions in Parliament have been heard recently in relation to regulating letting agent fees which one Conservative MP described as “an opportunity to fleece tenants”.
The research note states that the Government considers that the present legal framework strikes the right balance between landlords and tenants and that new regulations would “introduce too much additional red tape”.
Two landlords at the center of a legal challenge to Chancellor George Osborne’s tax changes announced in last year’s budget have confirmed that two government departments had provided an “acknowledgement of service”.
The legal challenge to the Treasury’s tax changes was launched by two landlords, Steve Bolton and Chris Cooper, who used a crowdfunding platform to raise sufficient capital to employ Omnia Strategy, a legal firm founded and chaired by Cherie Blair, to seek a judicial review of the Chancellor’s measures.
The legal battle over the Chancellor’s proposed changes to Mortgage Interest Relief follows the failure of a Petition launched by the Residential Landlord’s Association to attract sufficient support to warrant debate in Parliament.
Karen Buck, the Member of Parliament for Westminster North has announced that only 14,000 of a total of 51,316 complaints made to councils about poor housing were subjected to a local authority environmental health assessment in 2014. Ms Buck, has also claimed that on average councils prosecuted only one rogue landlord each year.
The figures were presented in a debate about standards in the Private Rented Sector on February 6th during which Ms Buck asked whether the statistics provided irrefutable evident that local authorities lack the resources to investigate cases of housing disrepair.
On being asked what measured the Government proposes to adopt to tackle rogue landlords, the Government’s Minister for Housing and Planning, Brandon Lewis, claimed that enabling councils to issue civil penalties amounting to up to £30,000 and remedy payment orders for up to 12 months proposed under the Housing and Planning Bill would give councils extra resources to improve housing conditions.
Also participating in the debate was the Labour Member for Hampstead and Kilburn, Tulip Siddiqm who claimed that many of his constituents who rent privately have reported being the victim of revenge evictions despite the banning of retaliatory eviction in 2015.
Omnia Strategy, the legal firm founded and chaired by former Prime Minister Tony Blair’s wife, Cherie Blair, has written a formal complaint to HMRC proposing a judicial review of Chancellor George Osborne’s restrictions of deductions of finance costs related to residential property.
The new tax changes, set to be implemented in the autumn of 2017 would limit the ability of landlords operating as sole traders to offset mortgage interest payments from their tax liabilities.
The decision to seek a legal challenge to the Chancellor’s tax changes comes as a formal petition set up by the Residential Landlord’s Association failed to reach the required number of 100,000 signatures to be considered for debate in Parliament.
The legal challenge to the Chancellor’s proposed tax measures was brought by Steve Bolton and Chris Cooper who raised £50,000 in crowd-funding from landlords’ associations to initiate a legal challenge to George Osborne’s tax changes.
Mr Bolton owns around 20 residential and commercial properties is also the founder and owner of Platinum Property Partners, a buy-to-let specialist with a portfolio worth a total of £200million. Mr Cooper is a part-time landlord who is using buy-to-let as part of his pension.
The letter to HMRC lists Miss Blair as one of two legal advisers for the claimants and bases the challenge on several purported breaches of the European Convention on Human Rights. The letter claims that the Chancellor’s measures infringe on one’s right to hold one’s property in a way without unfair taxation and may also go against European Union competition laws by favoring large institutions over small individual investors.
In it’s official response to the petition, the Government has claimed that the tax changes remove tax advantages enjoyed by property investors which are not available to those investing in other asset classes.
A move by a landlord’s organization, the Residential Landlord’s Association to overturn Chancellor George Osborne’s changes to landlord tax exemptions suffered a serious blow as its Parliament petition failed to attract sufficient support.
The petition, “Reverse the planned tax relief restriction on ‘individual landlords’” expired today without reaching the required number of 100,000 signatures necessary to be considered for debate in Parliament closing with only 60,894 signatures.
Begun six months ago, the motion sought to challenge Chancellor George Osborne’s reduction of Mortgage Interest Relief announced in his 2015 Summer Budget and Autumn Statement. However, enough support was obtained to warrant an official statement on the topic whereby the Government rejected claims that the proposed tax changes were unfair. In it’s response the Government added that the tax amendments were partly intended to reduce the tax advantages offered to property investors which were not shared by investors in other assets such as shares. The Government also claimed that only 18 percent of landlords are expected to be affected by the changes which are to be introduced gradually over four years beginning in 2017.
The petition’s sponsors, the Residential Landlord’s Association claimed that the tax changes were unfair and likely to result in higher rents for tenants as landlords seek to offset higher costs by increasing rents.
It is understood that some landlord groups are now seeking a judicial review of the Chancellor’s tax changes.
Two property developers, Steve Bolton, Chairman of Platinum Property Partners, and Chris Cooper are have raised £50,000 through a Twitter crowdfunding campaign to challenge Chancellor George Osborne’s planned tax changes for landlords. Under the Chancellor’s proposals, landlords operating as sole traders would no longer to be able to claim Mortgage Interest Relief when calculating their taxes.
Bolton and Cooper began fundraising towards the end of a Parliamentary Petition launched by the Residential Landlords Association titled: “Reverse the planned tax relief restriction on ‘individual landlords’ which argued that the Chancellor’s plans were unfair to private landlords and may result in higher tenant rents.
The Residential Landlord’s Association petition attracted 60,894 signatures, well short of the required 100,000 necessary for the motion to be considered for debate in Parliament which may leave Court action the only option to challenge the proposed tax changes. The motion did however receive enough support to merit an official response from the Government reiterating the Treasury’s support for implementation of the Chancellor’s measures. In its response the Government claimed that the tax changes were fair and merely removed tax exemptions for property investors which are not enjoyed by those in other asset classes.
Speaking about the Chancellor’s plans, Bolton stated “It’s not clear why the government has chosen to just launch an attack on buy-to-let owner-operators with mortgages. It’s a tax from Alice in Wonderland – truly absurd and divorced from real life. Not only is this tax grab unfair, undemocratic and underhanded, but we believe that it could also be unlawful.”
It is believed that the pair have sought legal advice matter from Omnia Strategy, a legal firm founded and chaired by Cherie Blair.