Am I self employed?

What should be an obvious question isn't and many people make the opposite mistake of not completing a tax return when they do have residential investment property.

However, to be considered self employed and running a business a landlord must be involved in more than the basics of maintaining an investment such as: finding a tenant, issuing an AST, collecting rent and managing property maintenance and repairs etc

To be considered self employed and have to pay Class 2 National insurance you would need to offer additional services to tenants over and above the basic rental agreement like laundry or cleaning etc.

From .GOV site >> https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim23800

A self-employed earner is defined at section 2(1)(b) of the Social Security Contributions and Benefits Act 1992 as: ““self-employed earner” means a person who is gainfully employed in Great Britain otherwise than in employed earners employment (whether or not he is also employed in such employment).”

A person who is liable to Income Tax on the profits of a trade, profession, or vocation will generally also be a self-employed earner for National Insurance Contributions (NICs) purposes. As a self-employed earner, they will be liable to pay Class 2 NICs.

However, a person who is liable to Income Tax on the profits arising from the receipt of property rental income will only be a self-employed earner for NICs purposes if the level of activities carried out amounts to running a business.

The nature of property letting requires some activity to maintain the investment, but that is not enough to make it a business. For example, being a landlord normally involves:

undertaking or arranging for external and internal repairs
preparing the property between lets
advertising for tenants and arranging tenancy agreements
generally maintaining common areas in multi-occupancy properties; or
collecting rents.

In order for a property owner to be a self-employed earner, their property management activities must extend beyond those generally associated with being a landlord (which include, but are not limited to, the above).

For example, ownership of multiple properties, actively looking to acquire further properties to let, and the letting of property being the property owner’s main occupation could be pointers towards there being a business for NICs purposes.

A landlord will also be a self-employed earner if any of their activities amount to a trade for Income Tax purposes. This could include, for example, receiving income from other services such as providing a bank of washing machines in a multi-occupancy block that is rented to tenants, or providing an ironing service to tenants. Running a guest house or hotel will also usually amount to a trade for Income Tax purposes, so an individual proprietor will be a self-employed earner for NICs purposes.

If a property owner has an agent who manages their property for them, things that the agent does should be attributed to the owner. ‘Agent’ includes a friend or family member, as well as a professional managing agent. However, a property owner will only be a self-employed earner on this basis if the things that the agent does for them (ignoring any other clients they might have) are enough to count as a business or trade.
Examples

Samantha lets out a property that she inherited following the death of her great aunt. This will not constitute a business.

Bob owns ten properties which are let out to students. He works full time as a landlord and is continually seeking to increase the number of properties he owns for letting. Bob is running a business for NICs purposes.

Claire owns multiple properties that are let. She spends around half her working time carrying out duties as a landlord and is not looking to increase the number of properties she owns. If the only duties that Claire undertakes are those normally associated with being a landlord, then this would not constitute a business.

Hasan purchases properties using “buy to let” mortgages. He places all letting duties in the hands of a property letting agent who acts as landlord on his behalf. If the only duties that the property letting agent undertakes for Hasan are those normally associated with being a landlord, then this would not constitute a business.

Its a bit dubious to say the least, if Claire says she is "continually seeking to increase the number of properties she owns for letting" does that then mean she is self employed? Regardless of the facts she may not actually buy any properties. It does seem strange the difference between being a business and investment rely's on little more than purposed intention..

Hi Caroline, my understating and the process i went through way back when, was for my accountant to register me with the IR, and for them to be advised of my trading practices ie what it is i that i actually do to be self employed then categorised by them, i then received a SE tax number, if you haven't done this then technically you are probably in breach of your responsibility to keep the IR up to date.. (assuming you are receiving an additional regular income from your regular renting activities)

Interestingly as my day to day income activity is registered as being property rentals, if i flip a property instead then its deemed by the IR to be outside of my regular activity so its is then void of inc tax but is subject to cap gains instead which can be handy if split between myself and spouse using CGT allowances thus avoiding pushing me into a higher rate inc tax bracket..

So really perhaps you need a consultation with an accountant..

I have been a small Landlord for nearly 40 years and never considered myself self employed for tax purposes. Income from property is unearned income and exempt from National Insurance unless you wish to pay voluntary. All income whether earner or not has to be declared to HMRC, so I always make a self assessment tax return. Although I consider myself a small Landlord, the income I receive is my sole income good enough to put me in the 40% bracket.

The short answer is no.
HMRC a few years ago tried to make every landlord self employed to enable them to charge class 2 NICs.
They got very heavy handed sending out demands. i can't remember if it went to court, but they backed down.
I paid in protest at the time as it was safer. But then got full rebate.

I asked the HMRC about this about a year ago. What they said was pretty much as detailed by Neil Patterson above. In fact he's made a pretty good job of outlining what I was told. My properties are fully managed by agents - I wouldn't know my tenants if I met them in the street. Therefore....thinking about it like that, property is for me an investment. Just like ISA's, shares, or Premium Bonds - and you wouldn't call people with these forms of investment self-employed. Mind you given the rate at which we're brutally and spitefully savaged by 'legislation' its maybe only a matter of time eh?

I've just gone back over my communication with HMRC, the following case was pivotal in the conclusion.
Rashid v Garcia [2003] SSCD 36, the Special Commissioners concluded that class 2 contributions were not payable on let property.
You should read this case, as I recall it is dependant on if you offer a service. Management of your properties is not a service, whether directly or indirectly.

It's a business if you become involved to a certain extent, 20 hours per week for a couple in this example...
Ramsay v HMRC.
HMRC fought it but eventually accepted that the following activities constituted running a business ..... These activities included: checking and paying electricity bills for the communal areas, unblocking drains, returning post for previous tenants, gardening, cleaning vacated flats and communal areas, checking security of the property, and providing additional assistance to an elderly tenant. Mrs Ramsay and her husband spent approximately 20 hours per week carry out the activities, and had no other occupation.

http://www.bailii.org/uk/cases/UKUT/TCC/2013/226.html