Rich pensioners, rental income and NICs

By Tom Entwistle, LandlordZONE

What surprises will the budget deliver for landlords, especially for those who are retirees? 

It’s that time of year again. When the budget approaches in the autumn, the media and commentators put the fear of God in us landlords by threatening all kinds of tax raids, most of which never materialise.

Of course, some will. But some of it is the government kite flying just to see which way the wind is blowing and how strong the reaction will be. For three years in a row, under the Rachel Reeves and now John Healey chancellorships, threats of tax increases have contributed to much uncertainty in the economy. 

This year again there have been threats made to impose National Insurance Contributions on rental income, and there’s always the threat of increasing capital gains tax (CGT) and rent caps, similar to those imposed on Scottish and Irish landlords. 

This year though, the threat is to impose NI contributions on all pensioners' earned income.

This article covers the position in England. It is intended as general information for landlords and letting professionals and does not constitute legal or tax advice. Landlords with concerns about their own tax position should consult a qualified tax adviser or accountant.

Think tanks rule

A new report from the Institute for Public Policy Research (IPPR) – not adopted government policy – has revived talk of National Insurance (NICs) reform for all pensioners several weeks before Chancellor John Healey delivers his first Autumn Budget on 28 October 2026. 

As the majority of small-scale landlords are older, many are pensioners and could be classed as “rich” by general standards, the conclusions of this research are a direct threat to the landlord class.

The IPRR coverage puts landlords straight into the “rich pensioners” category, the target of their report. It’s an understandable assumption, but it glosses over an important reality: not all landlords are by any means rich. It has to be said that the IPPR’s proposals target pensioners’ earnings, not rental income. HMRC’s own rules are the reason why those are not the same thing.

Rental income v earned income

Rental income is classed as investment (unearned) income which is not subject to NICs, whereas what the IPPR is proposing sits apart from an earlier, separate think-tank proposal that did target rental income directly. For those landlords approaching retirement age – or already past it – property income for those in their own name will not be affected, nor will dividend income, but their other employed earnings or where their properties are held within a company is a different matter.

What does the IPPR report propose?

This left-of-centre think tank report, written by Oxford political economist Professor Ben Ansell and published by the IPPR in late August 2026, has argued that Britain’s ageing population will account for close to 40 per cent of the additional pressure on the public finances by 2075.

It argues that the tax system has increasingly protected older, asset-rich households while loading the cost onto younger earners. To correct that imbalance, Ansell proposes three reforms: a 0.65 per cent proportional property tax to replace both council tax and stamp duty; aligning capital gains tax rates with income tax, with an allowance to protect normal investment returns; and applying the existing 2 per cent National Insurance surcharge to pensioners who continue earning.

This last point is the one generating headlines, as employees currently pay Class 1 National Insurance at 8 per cent on earnings between the primary threshold and the upper earnings limit and at 2 per cent above it.

The self-employed face an equivalent structure under Class 4. Once someone reaches state pension age, both exemptions fall away entirely, meaning earnings from continued employment or self-employment attract no NI charge at all.

Ansell’s proposal would end this blanket exemption by applying the 2 per cent rate but not the full 8 per cent to a working pensioner’s earnings. It is a surcharge on earned income from continued work, so those “retired” landlords with other earned income or those landlords employed by their own limited company would have their earnings come within scope. 

Nothing in the reporting so far suggests this proposal extends National Insurance to all rental income, but as explained above, this would be difficult – HMRC can’t have it both ways, an investment and not a business. But the proposals would matter for a significant number of landlords who are also pensioners.

Why does rental income sit outside this proposal?

HM Revenue & Customs treats income from letting property as UK property business income under Part 3 of the Income Tax (Trading and Other Income) Act 2005. It does not treat it as earnings. That classification is why rental profits have never attracted Class 1 or Class 4 National Insurance for landlords of any age. 

NICs are a charge on earnings from employment or self-employment, so for property letting, HMRC’s guidance is clear: it is ordinarily an investment activity rather than a trade, even where a landlord actively manages a property or a portfolio and it forms a substantial part of their income.

There has historically been a couple of exceptions. Under the former Furnished Holiday Lettings regime, qualifying FHL profits were treated more favourably for certain purposes and, in some circumstances, exposed the landlord to Class 4 liability in a way ordinary residential lettings were not. 

That regime was abolished from April 2025, aligning FHL income with the ordinary property income rules and removing even that limited overlap between letting and earned income.

So, this Ansell proposal, on the terms reported, would not touch rental profits directly. A landlord past state pension age who takes on paid consultancy work, sits on a board, manages their property within a limited company drawing a salary, or continues a trade property alongside their letting business could see NI applied to that separate earned income. 

The Joseph Rowntree proposal

In May this year, the Joseph Rowntree Foundation (JRF) published another proposal, previously discussed on LandlordZONE, that paired rent control with a specific plan to apply NICs to rental profits, combined with restoring full mortgage interest relief that Section 24 currently restricts. 

JRF’s rationale was different from the IPPR proposals, not focusing on fairness between workers and pensioners, but bringing parity between landlord and tenant tax treatment more generally, with the revenue generated partly used to offset the introduction of rent caps.

Another of IPPR’s reports had previously floated the idea of rent controls with a “double lock” model, capping increases at the lower of inflation or wage growth. That proposal, and JRF's, remain on Labour’s housing-policy debate. 

Ansell’s later proposal addresses the cost of an ageing population, and its NI proposal is narrower and differently targeted to JRF’s. Both represent risks for landlords depending on individual circumstances.

None of this is confirmed government policy. The new prime minister, Andy Burnham, is yet an unknown quantity as far as property taxation is concerned, but since becoming prime minister in July, he has refused to rule out tax rises in the coming budget.

Likewise, Chancellor Healey has made no commitment either way on NI, property taxation, or rent controls. But the IPPR is an influential voice on Labour’s thinking, and several of its former staff now sit in government. 

What budget measures are we sure of?

Amid the speculation, a few landlord-relevant measures are already decided from previous labour budgets. 

From April 2027, individual landlords face a 2-percentage-point rise in the income tax rate on rental income, taking the basic, higher and additional rates to 22 per cent, 42 per cent and 47 per cent, respectively. Those landlords with limited companies are not affected.

From April 2028, a “mansion tax” surcharge of £2,500 to £7,500 a year will be applied to homes valued at £2 million or more, on top of existing council tax.

Income tax thresholds remain frozen until 2030/31. Known as “fiscal drag", this measure will continue to draw landlords into higher tax bands as rents rise even where the headline rates stay the same.

The 5 per cent Stamp Duty Land Tax (SDLT) surcharge on additional properties remains in place, while Andy Burnham ruled out scrapping stamp duty entirely in July.

Conclusion

The IPPR’s latest intervention adds to speculation about tax reform proposals for landlords, especially retired landlords, ahead of the Autumn Budget. As things stand, it would reach a working pensioner’s earnings from employment or self-employment, not their rental income. HMRC has long treated property income as investment income. 

Will these proposals result in tax more rises for landlords?

Watch next month’s budget for measures affecting landlords who are also pensioners. Keep an eye out for both these proposals appearing in some form. With the Chancellor yet to confirm any of it, the most useful step available now is distinguishing what has actually been proposed from what has simply been reported in the press.