Landlords affected by the increase in taxes on buy-to-let properties have a new and powerful ally in the form of barrister Cherie Blair.
Cherie Blair QC is planning to use European human rights legislation in her bid to quash the property tax which is due to come into effect in April.
Under the proposed changes, small-scale landlords and landlords who do not operate their business as a company will be unable to deduct the costs of interest on their mortgages from their rental income before they calculate profit for tax purposes. It has been suggested that this could boost the Exchequer’s coffers by nearly £1bn a year by 2021.
The tax hike could mean that landlords increase rents to cover the cost of their tax bill or will decide to sell the properties and find an alternative source of investment, which could leave their tenants without a home.
The tax hike is part of the Government’s plan to increase home ownership and encourage younger people to get on to the property ladder. However, many properties in prime employment areas will still be out of their reach. For example, much of London and the commuter belt surrounding the Capital command high property prices which people on an average salary cannot afford.
Many will live in rented accommodation to be close to work or will be forced to live further and further out from central London and other major cities.
The rental market is lucrative in areas of high employment or where there is a large student population. But the increase in demand for rental accommodation seems to have provoked a reaction by the Government in increasing taxes on landlords.
Now, according to an article in The Daily Telegraph, Mrs Blair has sent a letter to HMRC setting out the legal argument for challenging the property tax through the courts.
The letter to HMRC argues that the changes would discriminate against individual buy-to-let investors as they would not have the same rights as other business owners. It could also hit those people who freed up some of their pension pot – another Government initiative – in order to invest in property.
The counter-argument is that the proposed changes will only affect the wealthiest landlords but that could prove not to be the case. In fact, corporate landlords including pension funds and insurance companies will not be affected by the changes as they can continue to be taxed solely on profits after off-setting costs against income. In addition, wealthy landlords will not need to take out a mortgage and so will not be affected.
The letter by Mrs Blair’s law firm Omnia Strategy alleges that the difference between the way in which corporate landlords and individual landlords are treated contravenes article 1 of the European Convention of Human Rights, in addition to distorting competition by seeming to favour corporate landlords.
The Daily Telegraph report says that the case is being brought by two private landlords and is funded by a group of 737 people, which includes other landlords and letting agents.
It will be interesting to see if the proposed legal action will force a U-turn by the Government.