Chris Cooper never thought he’d be suing the government. As cabin crew with an airline, he earns £34,000 a year and lives in a one-bedroom flat in Windsor, down the road from Heathrow. Fifteen years ago, he remortgaged that flat to start a buy-to-let portfolio that now consists of 15 properties.
“Rather than trading up, I’ve used that money to make pension provision,” Cooper, 54, tells me in his first media interview. “I’ve worked hard at it.”
Then came last year’s summer budget: landlords could no longer deduct mortgage interest as a cost when working out their taxable profit. This, the Treasury said, would affect “wealthier landlords with larger incomes”, so the tax system would stop supporting them “over and above ordinary homeowners”.
Of course, most “wealthier landlords” have no mortgages, so will be untouched. But many less affluent landlords still don’t know that they’ll be hit. After paying tax on his total income under the new rules, Cooper found he would have £27,000 left to live on — about £10,000 less than before. In effect, his 15 properties will leave him only £1,000 a year better off than if he had none — and an interest-rate rise would wipe that out.
A bit of Googling told him that his only chance would be to apply for a judicial review of the changes, which had become law. Based on Cherie Blair’s reputation for human-rights challenges, he contacted her firm, Omnia Strategy LLP. One email later, to his friend Steve Bolton, who represents 250 landlords as the founder of Platinum Property Partners, and the duo had started a lawsuit against the government with Blair’s help. Within eight days, they crowdfunded £50,000 from 741 backers. On Thursday, they are hosting a summit in London as they await a High Court ruling on whether their case can continue (tenanttax.co.uk).
By HMRC’s own estimates, one in five landlords will pay more tax under the new rules, to be phased in from next year. (I’m one of them. Our buy-to-let in north London, bought last year to help fund an eventual step up from our two-bedroom cottage, will cost us more in tax than it makes in rent.) By 2020, landlords must calculate tax without deducting interest costs, before applying a 20% relief on those interest costs. This increase in “taxable profit” pushes many basic-rate taxpayers, including Cooper, into a higher bracket. Some will even have to pay tax despite making a loss.
This, says Cooper and Bolton’s legal challenge, discriminates unfairly against individual landlords, as companies and holiday lets can still deduct finance costs as a business expense. It also applies retrospectively to properties bought years ago. “Having the rug pulled out from under me at 54 doesn’t give me a lot of time to start over,” Cooper says.
Though his portfolio, mostly £80,000 houses near Manchester, earns £104,000 a year in rent, he makes £16,000 after interest (£51,000) and expenses such as agents’ fees (£37,000). Its total value has grown by almost £750,000 to £2.4m, equivalent to an annuity income of £37,500 a year. To cover the tax, Cooper would have to raise rents by 36% — likely causing his properties to sit empty — or sell, giving notice to tenants like the widowed mother who rented one of his houses for 10 years. “What gives a first-time buyer more right to make it their home than the person who lives there?” There are no winners here.
• Property’s next big thing is virtual viewings. Or is it? Having fiddled for 15 minutes to get Rightmove and Martyn Gerrard estate agency’s new 360-degree tours working on an iPhone, with a Google Cardboard headset, I’m queasy and have a headache. The rooms of the £2.5m north London mansion look grainy, but at least I can see the big school block overlooking the garden — with birdsong in my ears. After 781 virtual viewings, said mansion is under offer. From a buyer who saw it in the flesh, natch.
This column was published in The Sunday Times Home on 5 June 2016