Landlords fighting new mortgage relief rules for buy to let have fired the first broadside in their battle to change the law.
Two landlords have launched a legal challenge headed by former prime minister’s wife, lawyer Cherie Blair.
Blair has written a letter to the Treasury claiming the new law breaches the human rights of landlords and feels the campaign has ‘a reasonable chance of success’.
The tax changes are scheduled to take effect from April 2017 and taper tax relief for landlords paying income tax at the higher and additional rates down from 45% or 40% to 20% over four years.
The controversial measure was announced by Chancellor George Osborne in his Budget 2015.
The Treasury has estimated the move will raise an extra £1 billion in income tax on rental profits from buy to let landlords from 2021.
The changes also bring more landlords into the higher rate tax net as the way rental profits are calculated is altered at the same time.
Landlords paying income tax on rental profits at 40% or more will see their profits worked out by taking expenses excluding mortgage interest deducted from rents and then a 20% credit for mortgage interest added back to the calculation.
Many landlords and tax professionals claim this will make buy to let unprofitable for thousands of property investors and some could pay income tax when they no longer make a trading profit.
Blair argues this is unfair to buy to let landlords as other businesses are not subject to the same profit calculation.
She has sent a pre-action letter to the Treasury and the government must file a defence by February 10, 2016.
The landlords mounting the challenge, Steve Bolton and Chris Cooper, have raised £50,000 from 740 backers. A petition against the tax changes gained 60,000 signatures, but fell short of the 100,000 names required to force a debate in Westminster.