Landlord Tax: Clause 24 Judicial Review
So what is Clause 24?
Currently landlords are able to offset their mortgage interest against their rental income before any tax is paid on their profits. This is a perfectly normal business practice as general taxation principle is that tax is applied on profits.
George Osborne proposed Clause 24 in his 2015 budget. This was introduced as part of the Finance Bill. It does not affect wealthiest landlords with no mortgage debts nor does it affect Companies.
Government proposals require landlords to pay full tax on their rental income. This means that by 2021 deduction for mortgage interest relief will be capped at 20%. This is a huge change because mortgage interest in one of the largest expenses on landlords’ cost. All other businesses are taxed differently and therefore, they can off-set their interest on loans to buy assets.
Landlords began to campaign against the tax changes, and launched a petition to have the plans scrapped. Many landlords wrote to their MPs for their support but very little support was shown.
Individual landlords and housing organisations wrote to the Parliament Finance Committee highlighting their concerns. The Finance Committee debated Clause 24 for less than 15 minutes, and no amendments were suggested by the MPs. It was clear that many of the MPs did not grasp the issues or read the concerns.
So what is Tenant Tax?
Clause 24 is also referred to as Tenant Tax because many of landlords are planning on increasing the rents and pass on the additional cost to their tenants. In fact many of landlords are selling their investment portfolios to pay down debts on their mortgages.
Clause 24 Calculator
How do I calculate how much tax I will be paying?
You can download Clause 24 Calculator in Excel format here. There are also a number of other interactive online Clause 24 tax calculators prepared by:
Clause 24 Judicial Review
Despite protests from landlords, the Finance Bill was approved on 18th November 2015. The restrictions on off-setting the mortgage will gradually commence from April 2017. That is not the end of the story, as many landlords are not even aware of Clause 24. Therefore, landlords will receive a shock tax bill in 2017 when they file their personal tax returns.
Landlords remain concerned about tax changes as their businesses are under threat. On Boxing Day in 2015, Clause 24 Judicial Review campaign was launched by Steve Bolton and Chris Cooper to raise landlords’ awareness of Clause 24.
Judicial Review is a court proceeding whereby the judge reviews the lawfulness of a decision. Before substantive judicial review commences, a court order must be obtained. Permission is only granted if the judge believes there’s an arguable case. The funding target of £50,000 has been reached which means that a Judicial Review will now take place in September 2016.
A judicial review can only be successful if it can demonstrate that Clause 24 breaches Human Rights Act or European Union Laws. Specialist legal advisors have been appointed with a Cherie Blaire representing the landlords in the judicial review.
Why raise awareness of Clause 24?
Most people think that Clause 24 will only affect landlords. This is not the reality. Landlords provide rented accommodation for tens of thousands of people who either wish to remain tenants or unable to buy their homes. Because of Clause 24, many landlords have already started selling their properties.
This tax change has very serious implications for the private rental sector. Landlords will face a tax bill even their properties are making a loss. This means that existing rental business will become unsustainable.
What this means is that fewer demand from landlords buying more investment properties, and a general slowdown in housing market as a whole.
Some landlords are already raising rents. Unfortunately some tenants will be evicted and properties sold.
We believe that Clause 24 that affects landlords and tenant is a direct attack on good hardworking people. It affects not only landlords, tenant and also sellers who would rely on investors buying their properties. It means that market will experience a slow down until this uncertainty is clarified. If landlords lose the tenants tax judicial review, then it will severally impact housing market.
If you are a landlord looking to sell your investment properties do talk to us, as we would be happy to make you an offer.