The Alice in Wonderland Tax Grab – Buy-To-Let Hit Hard
In his Summer Budget last year, the Chancellor George Osbourne announced a number of swingeing tax increases targeted to hit individual buy-to-let investors. They are complex, harsh and highly discriminatory against the private landlords sector. The measures were described in a Daily Telegraph article last August as the Alice In Wonderland Tax Grab, because they are so financially absurd.
The main four changes are as follows:
- The removal of higher rate tax relief on mortgage interest staged over 3 years from 6th April 2017.
- Capital Gains Tax will be payable on the sale of an investment property within 30 days from 6th April 2019.
- The removal of the 10% wear and tear relief for furnished lettings from 6th April 2016.
- An extra 3% stamp duty payable on purchases of second homes above £40,000 from 6th April 2016.
Landlords were so up in arms about these changes that theyresorted to creating a campaign online using the website Crowd Justice, in order to raise £15,000 for a fighting fund which will enable them to fight clause 24 of the Finance Act 2015. The aim of this was to get a judge to accept a judicial review of the proposed removal of higher rate tax relief on mortgage interest for private landlords.
The proposed new law appears to break both European law and the resulting UK law in the 1998 Competition Act which outlaws putting one party at a competitive disadvantage to another. As these measures are discriminatory against buy-to-let landlords as opposed to companies which are unaffected by the changes. It would appear that landlords do have a justifiable case. Their Crowd Justice campaign was so successful they raised the £15,000 in a matter of days and subsequently raised a further £35,000 very quickly.
The disturbing feature about these proposed tax changes is that they were imposed without any consultation. They are deliberately discriminatory in nature and they appear to be wholly illegal. The worrying thing is that this democratically elected government could even consider introducing such laws in the UK. Their attitude is more akin to that of a one party dictatorship.
Whilst many buy-to-let investors will be very badly affected by these changes, especially the accidental amateur ones, the sad consequence of it all will be that the ultimate losers in all of this will be the tenants.
Landlords will have no choice other than to increase their rents to cover their increased costs. As a result tenants will be able to save less money for a deposit tobuy a house. Less people will become buy-to-let investors so less private sector properties will become available to rent thus further stifling supply. Fewer properties with higher rents will result in further house price increases which will make house buying even less achievable for first time buyers. It’s a case of the law of unintended consequences. Such an experiment was tried some years ago in Australia and it failed miserably. If the law does get enacted the same result for the UK is likely.
Unfortunately the Chancellor’s obsession with eliminating the deficit very quickly in order to make him electable as the next Prime Minister may well have the opposite effect.
Please visit us at https://wealthandtax.co.uk/ to find out more and for advice on the options available if you find yourself in this situation. We have a lot of experience in this sector and indeed Tony also has first-hand experience with another business of his, Shortstay MK.