Tony Byrne: Osborne’s absurd ‘Alice in Wonderland’ B2L tax grab

Tony Byrne

Chancellor George Osborne announced a number of swingeing tax increases targeted to hit individual buy-to-let investors in his summer Budget last year. The measures are complex, harsh and highly discriminatory against private landlords.

In fact, they are so financially absurd they have been described as the “Alice In Wonderland tax grab”.

The four key changes are as follows:

  1. Removal of the 10 per cent wear and tear relief for furnished lettings from 6 April.
  2. An extra 3 per cent stamp duty payable on purchases of second homes above £40,000 from 6 April.
  3. Removal of higher rate tax relief on mortgage interest staged over three years from 6 April 2017.
  4. Capital gains tax payable on the sale of an investment property within 30 days from 6 April 2019.

Landlords are up in arms about this. So much so they created an online campaign using the Crowd Justice website in order to raise a £15,000 fighting fund that will enable them to contest clause 24 of the Finance Act 2015. The campaign was so successful they raised the required amount in a matter of days and, subsequently, a further £35,000 very quickly.

The aim is to get a judge to accept a judicial review of the potential 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 appear unaffected by the changes, they seem to have a justifiable case. The most disturbing feature about the proposals is they were imposed without any consultation. Our democratically elected Government’s attitude is more akin to that of a one-party dictatorship.

And while buy-to-let investors will be badly affected by these changes (especially the accidental amateur ones) the ultimate losers in all of this will be the tenants. Landlords will have no choice other than to increase rents to cover their increased costs.

As a result, tenants will not be able to save enough money for a deposit to buy a house. Less people will become buy-to-let investors, so less private sector properties will become available to rent.

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 is a simple case of the law of unintended consequences. Such an experiment was tried some years ago in Australia and it failed miserably. If the law is enacted here I predict the same result for the UK.

Unfortunately, the Chancellor’s obsession with eliminating the deficit very quickly in order to make him electable as the next Prime Minister will have the opposite effect. He is fast alienating all sectors of society and this will be his ultimate downfall.

Tony Byrne is financial planning director at Wealth And Tax Management and author of Wealth Magic