Cherie Blair is set to challenge the government in court over controversial tax relief changes for buy-to-let landlords, arguing that it breaches human rights.
Omnia Strategy, the law firm founded by the wife of former Labour Prime Minister Cherie Blair, has sent a letter to HM Revenue & Customs (HMRC) on behalf of landlords Steve Bolton and Chris Cooper, calling for a judicial review of the tax.
George Osborne used his Budget speech this summer to announce a crackdown on tax relief for landlords in an effort to "level the playing field" between buy-to-let landlords and ordinary house buyers.
The new policy, which is part of the Finance Act 2015, will mean small-scale landlords will no longer be able to offset mortgage interest costs against rental income when they calculate a profit on which to pay tax.
The changes will be phased in from 2017, with the government gradually reducing mortgage tax relief to a flat rate of 20 per cent from 40-45 per cent today.
Read More: July Budget - changes to mortgage tax relief
Bolton and Cooper – who own a number of buy-to-let properties – are fighting to overturn the policy with the backing of 737 individuals including other landlords, claiming that it “discriminates against landlords” rather than levelling the playing field.
In its letter to HMRC, Omnia argues that the policy breaches the European Convention on Human Rights, and it constitutes unlawful grant of state aid to corporate landlords.
It also makes buy-to-let the only business where the cost of funding the capital of their business is not tax allowable. As a result, some landlords will be liable to pay tax on an economic loss and could have effective tax rates of over 100 per cent.
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.
“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 has until 10 February to respond before the case moves to judicial review. The landlords' campaign has raised £50,000 to pay for legal fees through crowdfunding website Crowd Justice.