PropertyInvesting.net: Property Investment News

Not only landlords will suffer from the UK's proposed buy-to-let tax change, industry experts warn.

The government's planned change to mortgage interest tax relief for landlords, which we have outlined here, was announced last year and is due to come into effect from April 2017. By charging buy-to-let investors tax on their mortgage interest payments, the revised law overturns a fundamental financial business principle, where income less costs equals profit.

Steve Bolton, Founder and Chairman of Platinum Property Partners, co-launched a legal case against the government on Boxing Day 2015, dubbing the charge "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," he said.

A separate petition against the changes closed today, with 60,845 signatures in total - 4,450 more than when we wrote about the tax changes last week, but short of the 100,000 needed for the petition to be considered for discussion in parliament.

Bolton warns that while perception of landlords is not always positive among the general public, it is not only them set to suffer.

"A recent survey by SpareRoom.co.uk found almost half of landlords plan on increasing their rents in 2016, with the main reason being the additional costs they are likely to incur following new Government legislation," Bolton explains to TheMoveChannel.com. "We expect to see a significant decrease in new entrants to the buy-to-let market, especially from investors who do not have the knowledge or experience to withstand increasing costs. Many amateur landlords may also be forced to sell as their business becomes unprofitable. Combine this restriction of property supply with rising costs for landlords and it’s no surprise rents are set to increase."

The National Landlords Association, which has not actively supported the petition or Bolton's legal campaign, has been lobbying individual MPs and met with Treasury and DCLG policy makers. The NLA estimates that more than 341,000 landlords will be directly impacted by the change.

"We believe that a significant volume of landlords will be forced to sell property, 26 per cent of landlords surveyed recently stated they would have to sell some properties and 5 per cent are already planning to exit the sector completely," comments the group.

"This is likely to remove upwards of 615,000 units of rented accommodation from the private rented sector – as a direct consequence of Mr Osborne’s decision – at a time when the Government is committed to increasing supply to meet demand."

Around 58 per cent of landlords planning to stay in the market have decided that they will need to increase rents to cover the cost and a further 14 per cent refuse to rule it out.

"Rising rents will make it even harder for tenants to save for a deposit, defeating the purpose of the tax changes and demonstrating just how misguided the Government has been in its attack on private landlords," adds Bolton.

With the petition failing to reach the 100,000 threshold, how is the Platinum Property Partners campaign proceeding?

"We are pleased to report that the judicial review of section 24 of the Finance (No. 2) Act 2015 has a “reasonable chance of success” according to our legal team, which also includes  Connor Quigley QC and Sarah Hannett," comments Bolton.

"The next step is for our lawyers, Omnia Strategy LLP, to send a letter outlining our case to the Government with a view to commencing judicial review proceedings. We will also be in further contact with key decisions makers within the industry to explore areas of common interest. Thereafter, we will submit a Pre-Action Protocol Letter which will enable our lawyers to put their case to the Government, who then get 21 days to respond."

"I am committed to this campaign because these changes are fundamentally wrong and could punish smaller landlords outside of our network who have invested in property to secure their futures and those of their children," he adds.

"The impact of the change in the treatment of mortgage interest relief is just one of a series of measures that the Government is aiming at individual landlords like us.  We need to fight back and do all we can to try and influence a change in thinking."

For further details of the campaign and donations towards the costs of the campaign, visit www.crowdjustice.co.uk/case/clause24