What? Who is breaching their human rights?

According to Blair, the Chancellor George Osborne is threatening the human rights of Britain’s landlords with a planned tax change.

Osborne announced in his Summer Budget last year that he plans to stop small landlords from deducting mortgage interest costs from their rental income before calculating taxable profits from 2017. The motivation for the tax is to “level the playing field” between residential homeowners and the “rapidly growing army of buy-to-let investors, now thought to number two million,” says Richard Dyson in The Telegraph.

Instead of deducting interest as a business expense, landlords will be able to claim a flat-rate 20 per cent rebate that effectively halves the tax relief for higher rate taxpayers. The plan has appalled buy-to-let investors who could end up having to pay a lot more tax on their investments. 

What is the argument?

In court papers lodged by Blair’s law firm, Omnia Strategy, she argues that Osborne’s tax plan “discriminates against individual buy-to-let investors by denying them the same rights as other business owners,” says Dyson.

According to the legal argument, preventing people from deducting mortgage interest before they calculate their profits “overturns a fundamental business principle where income less costs equals profit,” says Lee Boyce in the Daily Mail.

Why is Blair getting involved?

The legal challenge began with two landlords, Chris Cooper and Steve Bolton, who used crowdfunding to raise £50,000 for the legal fight. Then Blair took on their case and her legal team is now representing 737 individuals, including other landlords and letting agents.

This could initially look like political point-scoring. After all “a successful challenge to the tax would be embarrassing to George Osborne – and even more so the fact it is being spearheaded by the wife of the former Labour leader and Prime Minister Tony Blair,” says Boyce.

But another reason for Cherie Blair’s interest is her own buy-to-let empire. Along with her husband and children the Blair family own a number of properties, worth millions of pounds, that they let out. According to a report in the Daily Mail, the family have a £25m property empire consisting of seven houses and 27 apartments.

How exactly are the taxes rules changing?

At present when calculating their profits landlords can claim tax relief on monthly interest repayments on their mortgages at their highest level of income tax – so up to 45 per cent in some cases. But under the new scheme they will only get a 20 per cent tax credit for mortgage interest, putting a serious dent in their profits.

So, if a buy-to-let property generates a rental income of £10,000 a year but over that same period you paid £9,000 interest on your mortgage payments, then income tax would only be due on the remaining £1,000. If your income tax bracket is 40 per cent then you would currently owe £400.

Under the new rules you would owe tax on the entire rental income generated by the property, with permission to only deduct a 20 per cent tax relief on the mortgage interest. This should mean basic-rate taxpayers continue to pay the same, but it will hit higher and additional rate taxpayers.

Taking the example above, in the new system a higher-rate taxpayer would owe £4,000 in income tax on the full £10,000 rent and would get a rebate of 20 per cent of the interest value, so £1,800), leaving them a net tax bill three-times higher than now at £1,200. 

As the tax rate will now be calculated before the interest is deducted, more will also be higher rate as opposed to basic rate taxpayers. 

Is a win likely?

Blair “believes the campaign has a ‘reasonable chance of success’”, reports Boyce. 

www.theweek.co.uk/