The accidental landlord: 'the Chancellor's solution to the housing crisis is a "dog's dinner" - but it's tenants who will suffer'

A couple of landlords, who are challenging the Government’s plan to replace mortgage interest tax relief for private buy-to-let investors with a less-generous tax credit, need the rest of us to chip in to support their campaign.

They argue the move will lead to higher rents, and they’ve brought in the big guns in the shape of former prime minister Tony Blair’s missus, Cherie Blair MBE QC — who also happens to be one of the most famous landlords in Britain — to fight our corner. They need to raise £250,000 to pay for the Judicial Review of Clause 24 of the Finance Act 2015, due to be phased in from next April.

From then on, landlords won’t be able to offset their mortgage interest payments from their rental income. Instead, they’ll be given a tax credit, which will gradually be reduced to the basic rate of tax.

Taxing landlords on their income rather than their profit means that many who are currently lower-rate taxpayers, myself included, will be bumped into a higher tax bracket and, when interest rates rise, we could end up paying tax on a loss.

The legal challenge has yet to come before a judge — the courts are “very busy”, according to Mrs Blair — so we don’t yet know what chance it has of succeeding, but if it fails, it could be the beginning of the end for many of us small-time investors.

I can see how the Government is caught between a rock and a hard place when considering the disaster that is the British housing market. The recent boom in buy-to-let has added fuel to house price inflation, so the Government says it is trying to make property a less attractive investment to stop landlords competing with young people and families for homes. However, it doesn’t want to tax all landlords out of existence because there is, and always will be, a need for rental accommodation.

So Chancellor George Osborne has come up with a dog’s dinner of a solution that is not only unfair to private landlords but might also hurt their tenants. By continuing to allow tax relief on mortgage interest for companies that own rental accommodation, he has created an uneven playing field that significantly benefits institutional investors at the expense of private landlords.

The message from the Chancellor is clear. He would prefer the rental market to be controlled by large “professional” investors, rather than thousands of individual, part-time landlords with one or two properties each. However, there are lots of part-time landlords with one or two incorporated properties, which they run alongside their other businesses, who will continue to be eligible for interest tax relief. They are not more “professional” than me — so how is it fair that I should pay more tax?

I have a friend who is a finance director, so he is much more savvy than me when it comes to money matters. Naturally, before he started snapping up rental properties as a sideline, he set up a limited company for his investments, so now he will continue to get tax relief on his mortgage interest, but I won’t. I am sure many people are delighted private landlords will be contributing an estimated £1 billion a year more to the Treasury by 2021, but spare a thought for their tenants, many of whom face rent increases to cover their landlords’ higher tax bills.

That’s why some are calling this a tenant tax.