Do landlords have to pay class 2 National Insurance?

by Readers Question

18:53 PM, 4th February 2014
About 6 years ago

Do landlords have to pay class 2 National Insurance?

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Do landlords have to pay class 2 National Insurance?

We have three properties which we let out via a letting agent. My husband works full time and I have no other income. I am told that the tax man treats these properties as “investments”, (such as buying stocks and shares to quote them) rather than a business, thus limiting the type of expenses we can offset against them.

However, they want my husband to pay Class 2 NI contributions as they are classing him as being self employed.

This seems like ‘double speak’ to me – either it is a business or it isn’t. Do landlords have to pay class 2 National Insurance?

Do all landlords pay these contributions?

Thanks

Sophie

 

UPDATE

This discussion thread is now closed. By all means read through the pages of comments to understand the level of confusion surrounding this topic. However, the definitive answer was eventually posted by a Chartered Accountant who specialises in landlord taxation. His response quoted both legislation and case law. Link to his comment HERE.

 



Comments

Yvette Newbury

20:15 PM, 4th February 2014
About 6 years ago

Does your husband work permanently for an employer eg. under PAYE therefore paying NI contributions through his salary?

I know Sophie's query is regarding her husband, but I have a similar query in that If someone like Sophie has been renting properties in this way, has no other income and is not paying NI contributions, what happens with regards to benefits that are tied to NI contributions eg. treatment in hospital etc?

matchmade

20:17 PM, 4th February 2014
About 6 years ago

My understanding has always been that landlords are *not* self-employed because they are classified as "investors". I know no landlords who've ever paid NI. The only exception seems to be where the landlord provides a variety of additional services which takes up a significant amount of time. Examples of situations where the issue is debateable may be found at http://www.taxation.co.uk/taxation/Articles/2012/10/10/48151/those-about-let.

This article point out, for example, that the Self-Assessment guidance notes state categorically that the individual should “complete the UK property pages in respect of rental income and other receipts from UK land and/or property”, but complete the self-employment pages for “income from hotels and guest houses, and letting furnished accommodation in your home that amounts to a trade, for example, if you run a guest house or offer bed and breakfast, rather than just taking in a lodger”.

Are you running anything like a guest house? What were the circumstances in which HMRC claimed your husband is liable for Class 2?

Richard Kent

20:23 PM, 4th February 2014
About 6 years ago

Sophie,

If your husband owns and lets out buy to let properties he is running a business.

The definition of whether something is a business or not can be simplified by asking yourself whether that person receives a regular income from it the activity. In this case the rental income will satisfy this definition.

As for paying Employment Class 1 and 3 NI and Self Employment Class 2 and 4 NI. The answer to your question is YES.

Please note the Lower Profit Limit beyond which the payment of Class 4 NI required.

Please read the HMRC website here which addresses your question in detail.......

http://www.hmrc.gov.uk/working/intro/employed-selfemployed.htm

You can see that as an individual you can be simultaneously Employed and Self Employed.

If you look at a Self Assessment SA100 Tax Return form you will see there are sections relating to income from Employment and Self Employment in addition to sections on Investment Income such as interest on savings etc.

IMPORTANT: Please visit an Accountant ASAP as not paying Income Tax and NI on such business activities WILL attract fines.

I hope this helps.

matchmade

20:41 PM, 4th February 2014
About 6 years ago

If you follow the link in my last post and only see half the article, with a note saying only subscribers can see the whole piece, there does appear to be a workaround. Search on Google for "Landlord Class National insurance" (without the quotes) and the second hit after the paid-for advertising gives you the whole article (see the heading "For those about to let | Taxation").

The author discusses the longstanding view that, yes, running BTL properties counts as a business, *but* HMRC has argued that it is nonetheless a "passive" business with insufficient work involved to qualify as active trading and hence self-employment.

Therefore Richard's argument that a business is a business because there an income is produced needs to be qualified by this distinction between passive and active income. This is why I asked Sophie about the background to her engagement with HMRC: is there anything special about her rental properties that might push it into the "active" category and hence self-employment in addition to her husband's paid employment?

20:51 PM, 4th February 2014
About 6 years ago

If you are an Investor then you do not need to pay self employed NI. Indications for that would be you do not take an active interest in maintaining and renting out the properties (it is in the hands of letting agents).

If you do refurb/repair work and/or self manage rentals then yes you will be classed as Self Employed.

Richard Kent

20:55 PM, 4th February 2014
About 6 years ago

Reply to the comment left by "Tony Atkins" at "04/02/2014 - 20:41":

Sophie,

Without causing offence to Tony Atkins, I strongly recommend you ignore comments such as "passive and active income" as they are not recognised accountancy terms.

Please note that Income Tax due on income from a property and Capital Gains Tax due from the proceeds of the disposal (sale) of a property are both dealt with through the Self Assessment route in this case. Presumably HMRC have some information regarding his sole trader/ self employment status to have sent him a demand for Class 2 NI contributions in the first instance.

(I do not state my qualifications here for personal and maybe obvious reasons)

My strongest advice is for you to speak to an accountant ASAP.

I hope this helps 🙂

Gary Nock

21:03 PM, 4th February 2014
About 6 years ago

This is news to me. HMRC do not class BTL as a business so therefore not self employed in their eyes. Taxman cant have it both ways.

Richard Kent

21:07 PM, 4th February 2014
About 6 years ago

Reply to the comment left by "Gary Nock" at "04/02/2014 - 21:03":

Did you really say that? I'm so glad I didn't! 🙂

You obviously need to speak to an accountant too 🙂

You are aware that you are likely to incur fines for not submitting accounts and declaring your BTL properties ?

HMRC appreciate all Income Tax and CGT contributions.

REMEMBER- Your tax contributions go towards helping the less fortunate in this world. 🙂

I hope the £3000 CGT I have just paid on my last BTL is put to good use 🙂

Sophie Langdale

21:21 PM, 4th February 2014
About 6 years ago

Reply to the comment left by "Richard Kent " at "04/02/2014 - 21:07":

Hi. All of our tax returns are up to date. We do have an accountant who is of the view that this is an arbitrary decision on he part of HMRC. We just rent via an agent like lots of you but somehow we have been flagged and the NI applied.

Gary Nock

21:35 PM, 4th February 2014
About 6 years ago

Richard please do not assume I am an idiot. All my tax affairs are done through my accountant. I am only referring to the NICs aspect subject of this thread.

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