Do landlords have to pay class 2 National Insurance?

Do landlords have to pay class 2 National Insurance?

18:53 PM, 4th February 2014, About 8 years ago

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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

by Jeremy Smith

1:41 AM, 5th February 2014, About 8 years ago

I noticed the other day that we have a VAT specialist amongst us !!

- Perhaps we have a National Insurance specialist too ?

- Perhaps our VAT expert has some insight into your NI situation Sophie.

Thanks for your post Richard, that's helpful.

In my opinion, since the husband is fully employed, they should not consider him to be self-employed as well.
I just hope Sophie is using up all of her personal tax allowance.

by Richard Kent

1:55 AM, 5th February 2014, About 8 years ago

Reply to the comment left by "Jeremy Smith" at "05/02/2014 - 01:41":

HI,
You can be both employed and self employed. It's not uncommon.

My belief is that NI can be charged on rental profit and according to Sophie this is what HMRC are doing in her husband's case.

One of my questions is can a person escape the NI system if rental income is the only income? I think not.

I'll have a chat with my Chartered Accountant friend tomorrow about NI contributions on rental property.

I'll come back then.

by Richard Kent

9:27 AM, 5th February 2014, About 8 years ago

Reply to the comment left by "Yvette Newbury " at "04/02/2014 - 20:15":

Yvette,
The person you know can Pay Class 1 contributions voluntarily

Please see the following section of this document:

http://www.hmrc.gov.uk/forms/cf10.pdf

Paying to protect benefit entitlement
Even if you receive a Certificate of SEE, you can still pay
Class 2 NICs voluntarily to keep your entitlement to some
benefits. Before you decide to pay voluntary NICs, you should
get information about your State Pension entitlement,
including the number of qualifying years you have to date.
To do this:
• go to Working, Jobs and Pensions at gov.uk or
• if you live in the UK phone the Future Pension Centre on
0845 3000 168, textphone 0845 3000 169.

by Neil Barlow FCCA ATT

10:30 AM, 5th February 2014, About 8 years ago

Hi Sophie,

Although there is no definitive guidance from HMRC we have never come across HMRC chasing for Class 2 NIC in respect of a buy to let portfolio. I haven’t had time to read through all of the comments but I assume that your husband is employed rather than self employed, that he hasn’t completed any forms advising HMRC that he is self employed and that he completes the Land & Property pages of the tax return in respect of his buy to let portfolio.

Here are some brief notes which may help you deal with HMRC:

Class 2 NIC is due where an individual is categorised as a self-employed earner (s11 SSCBA 1992). A self-employed earner is someone who is ‘…gainfully employed in Great Britain otherwise than in employed earners’ employment…’(s1(b) SSCBA 1992).

S122 SSCBA 1992 defines ‘employment’ as ‘…including any trade, business, profession, office or vocation and “employed” has a corresponding meaning’, so it appears that if a portfolio of properties constitutes a business, Class 2 is due.
Therefore, the question boils down to whether a business is being carried on.

This was addressed in Rashid v Garcia (SpC 348), where the taxpayer argued that Class 2 was due on rental income (they were trying to claim some benefits). The taxpayer owned four let properties, including both residential and commercial lets, one of which was let to DSS tenants for lets of only a few weeks at a time. It was estimated that the taxpayer spent two to four hours a week and members of his family acting on his behalf spent 16 to 24 hours a week.

The Commissioner considered that there was insufficient activity for this to constitute a business and stated that:

‘…it is an investment which by its nature requires some activity to maintain it, rather than a business’.

by Thiru Vasagam

10:45 AM, 5th February 2014, About 8 years ago

I am a practising Chartered Accountant and I would advise Sophie as follows:
Your husband would be classed as someone who has Employment Income and Property Income ( I am avoiding technical terms to avoid confusion). Therefore he would complete specific areas of the Tax Return allocated for these sources of Income. As such these two sources are not liable for Class 2 NIC and also Class 4 NIC.

Steps to take: Please write to HMRC and ask them why your husnand has been issued with Class NiC demand when he does not have Self Employment Income. Also ask them to correct their records as they have issued the demand incorrectly.

Additional Note:
Property Income can be treated as self employment Income if Taxpayer chooses to involve in property development and trading activities and want to be treated as such. Under this the tax payer will not be entitled to claim the Capital Gains Tax Allowance £10600 in 2012/13 Tax Year.

Hope this is helpful.

by Mark Alexander

10:45 AM, 5th February 2014, About 8 years ago

Reply to the comment left by "Neil Barlow FCCA ATT" at "05/02/2014 - 10:30":

I knew you would be able to quote chapter and verse in terms of legislation and case law Neil, thank you 🙂

NOTE TO ALL - Neil is my tax adviser, he heads up a department which specialises in landlord tax and law at Pacific Limited which is a Norwich based firm but advises landlords countrywide. If you want to deal with the best of the best (in my opinion) and pay provincial rates then click on the link to Neil's business member profile in order to contact him 🙂

FURTHER NOTE TO NEIL - I owe you a drink for your comprehensive response, however, please consider my debt repaid by way of my glowing testimonial 🙂
.

by Mark Alexander

10:52 AM, 5th February 2014, About 8 years ago

Reply to the comment left by "Thiru Vasagam" at "05/02/2014 - 10:45":

Thanks for backing what Neil Barlow has also stated.

Have you considered upgrading your profile to business membership?

Please see >>> http://www.property118.com/business-sponsorship/
.

by Mark Alexander

10:53 AM, 5th February 2014, About 8 years ago

THREAD NOW CLOSED

Given that we now have the definitive answer I am closing this thread to avoid further confusion.
.

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