Landlords face paying National Insurance (NI) on their rental income if plans leaked by HM Treasury this morning make it into Rachel Reeve’s Autumn budget.
The Chancellor believes this extra tax on landlords will raise an additional £2.3 billion for the Government as she struggles to plug a reported £40 billion hole in the nation’s finances.
This figure is based on ONS figures which show that during the most recent tax year data published (2022/3) some 2.2 million landlords received £27 billion in rental income.
The Times reports that Reeves is looking for tax raising measures that will enable Labour to claim it has not broken its election promise to increase VAT, income tax or NI.
Money earned by landlords from rent, along with pensions and savings, are largely exempt from National Insurance payments, but for employers and the self-employed are levied at 8%.
The paper reports that Treasury officials believe property income in general is a significant potential extra source of funds, although the report do not make it clear whether the NI payments would be for landlords renting homes through a company, those doing an annual tax return as a private individual or both.
And the idea is not a new one – the measure was last mooted by the Chancellor during the run up to her last Budget.
Landlords are not the only property owners to face a tax raid by Reeves. Just a week ago HM Treasury said it was considering applying Capital Gains Tax to the sale of homes over £1.5 million, and also floated the idea via a similar leak to abolish Stamp Duty – although not for landlords – and charge an annual property tax on homes worth over £500,000 instead.
The Autumn budget is due to be delivered by Reeves in late October or early November this year.
Ben Beadle, Chief Executive of the NRLA
“Further punitive tax hikes on the rental sector will lead only to rents going up, hitting the very households the Government wants to protect," he says.
"It would come on top of last year’s increase to stamp duty on homes purchased to rent and proposals expecting landlords to pay up to £15,000 on energy efficiency improvements to properties.
“Analysis by Savills shows that up to one million new rental homes will be needed by 2031 to meet demand. Given this, the Chancellor should be using the tax system to encourage long term investment in new good quality rental housing.
"She should also heed the advice of the Committee on Fuel Poverty and reform the tax system to support investment in energy efficiency improvements.”
Shaun Moore, tax and financial planning expert at Quilter
"The proposal to apply National Insurance to rental income would be another significant blow to the buy-to-let sector, which has already been squeezed from all angles in recent years," he says.
"Introducing an additional tax burden risks accelerating the exodus of landlords from the market, further reducing the supply of rental properties at a time when demand remains high.
"This imbalance will inevitably push rents even higher, worsening affordability for tenants and deepening the housing crisis. Similarly, the addition of NI would almost certainly be passed on to renters through higher rents, compounding the problem.
"We would also expect to see the increasingly popular practice of holding properties within a limited company structure skyrocket as landlords look for ways to mitigate the impact of these changes.
"Ironically, this could mean the government’s expected revenue boost is far smaller than anticipated, while the unintended consequences for renters and the broader housing market could be severe.
"A more balanced approach might be to revisit the changes to mortgage interest relief. Allowing landlords to deduct mortgage interest before calculating taxable income, then applying income tax and even NI if necessary, would create a fairer system and reduce the incentive for landlords to incorporate, while still ensuring the Treasury raises revenue without destabilising the rental market."
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