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Private landlords Chris Cooper and Steve Bolton are seeking to challenge Clause 24 of the 2015 Finance Bill, in which the Government reduces the amount of interest costs landlords can offset against mortgage rental profits, before calculating tax. More than 600 people have so far pledged £42,000 to contest this matter via a crowd funding website.
The challenge is based on the argument that the legislation “flouts a long-established principle of taxation that expenses incurred wholly and exclusively for the purposes of the business are deductible when calculating the taxable profits”.
Omnia Strategy, founded and chaired by Cherie Blair QC, the wife of Tony Blair, has been appointed to represent landlords’ interests.
Our view, at Simmons Gainsford, is that this case has almost no likelihood of succeeding and the Court may well dismiss the case out of hand, for the following reasons:
Whilst it is correct that s54 of CTA 2009 does require expenses to be incurred wholly and exclusively for the purposes of a trade if they are to be deductible, this is merely laying down the base case position of what is required in order to be deductible. It does not mean that an expense is guaranteed to be an allowable deduction because it is wholly and exclusively for business purposes.
It is a generally understood and accepted principle of statutory construction that specific legislation takes precedence over general legislation. A good example in this context is business entertaining. Back in 1952 there was a Court of Appeal case, Bentleys Stokes & Lowless v Beeson  33 TC 491, which determined that entertaining clients over lunch, where business matters were discussed, complied with the “wholly and exclusively” test. Nevertheless, since 1965 the ability to deduct business entertaining expenses has been restricted, in stages1, by what is now s1298 CTA 2009. This specific restriction to the more general “wholly and exclusively test” has been in place and applied to business entertaining for over 50 years now.
The Government has the ability to raise tax in whatever manner it sees fit by enacting the necessary legislation. This has been established by a much more rooted principle than the “wholly and exclusively” test, namely the English Bill of Rights 1689.
Given the above, I am therefore surprised that Omnia Strategy is wasting its clients’ time and money by pursuing this case. There are potentially better ways to mitigate the impact of the interest restriction, including considering the possible incorporation of a rental business into a company and I will discuss this in a forthcoming article.
Head of Real Estate Tax, Simmons Gainsford
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