The government’s reforms of buy-to-let constitute an unlawful use of state aid, according to a letter sent to HM Revenue & Customs by laywers handling a judicial review bid.
Steve Bolton and Chris Cooper have sought to challenge chancellor George Osborne’s decision to restrict the amount of tax relief a landlord will be able to claim on mortgage interest to the basic rate.
The pair have hired Omnia Strategy LLP to act for them and have now published the letter their barristers sent to HMRC late last month.
The pre-action letter requires a response by HMRC by tomorrow (10 February).
In the letter they claim the changes effectively grant state aid to corporate landlords and to owners of commercially let holiday homes because no restriction has been imposed on them.
The letter stated: “The defendant has sought to justify the departure from the existing reference framework on the basis that individual landlords are in competition with home buyers in relation to the purchase of individual property and that the tax benefit for the former should be reduced.
“The argument cannot justify, from a state aid perspective, a difference in treatment as between individual and corporate landlords (or between individual landlords and owners of commercially let holiday homes).
“Such differential treatment is not intrinsic to the tax system, but involves extrinsic considerations.”
Omnia Strategy, which was founded by Cherie Blair in 2011, also claimed the change breaches article 1, protocol 1 of the European Convention on Human Rights which guarantees the right to property in that it is not proportionate and “devoid of reasonable foundation”.
It said: “The measure imposes an excessive and individual burden on the individual landlord taxpayer.
“Taxable rental income has historically been treated in the same manner as income from a trade or profession and so costs of finance have been deductable as an expense.
“In other words, individual landlords carrying out a property business are being treated more punitively than other individuals carrying out a trade or profession.”