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Landlords take government to court over ‘Alice in Wonderland’ tax grab

The legal campaign to fight the “punitive” tax relief changes for buy to let landlords has reached the next stage.

The campaign, led by two landlords, is now set to challenge the government’s “Alice in Wonderland tax grab” in court and has the backing of over 700 supporters.

Legal opinion from Cherie Blair’s law firm Omnia Strategy LLP, who will be acting on behalf of landlords Steve Bolton and Chris Cooper, has stated that the campaign has a “reasonable chance of success”.

The case will be fronted by Cherie Blair herself along with human rights lawyer Adam Smith-Anthony.

Following a successful fundraising campaign where £50,000 was raised in a matter of days via the crowd funding platform, Crowd Justice, the legal team has now issued a Pre-Action Protocol letter to HMRC.

The letter calls for a Judicial Review of the Government’s policy change announced in the Summer Budget 2015 which restricts buy to let mortgage interest tax relief from April 2017.

The new policy (Section 24 of the Finance Act 2015) will prevent landlords with mortgages from offsetting mortgage interest costs against rental profit before calculating tax, which, the landlords argue, overturns a fundamental business principle where income less costs equals profit.

The new policy would result in some landlords, who finance their business with mortgages, paying tax despite making no profit on their letting business.

The landlords hope the legal challenge will ultimately overturn what it calls the ‘Alice in Wonderland’ tax, so named because of what they call its absurd nature and separation from real life.

Omnia Strategy LLP claims that the new policy breaches the European Convention on Human Rights, and it constitutes unlawful grant of State aid to corporate landlords and to the owners of commercially let holiday homes contrary to articles of the Treaty on the Functioning of the European Union.

Landlord Steve Bolton said:

“This tax grab is unfair, undemocratic and underhanded, and we believe it is unlawful on a number of points.

“In no other business are costs wholly incurred to fund the business liable for taxation. In addition, there is no substantiation in the Government’s proposal that the changes will create a level playing field between homeowners and buy-to-let landlords.

“The change discriminates against the typically smaller landlord who may incur effective tax rates of over 100% while making an economic loss, and gives an unfair commercial advantage to many other categories of landlord unaffected by the change. We are therefore delighted that our legal challenge has progressed to the next stage and look forward to receiving the Government’s response.”

The Government must respond to the letter by Wednesday 10th February, after which the matter moves to a judicial review, the formal process in which a court rules on whether or not legislation is valid.