Landlords face paying National Insurance on rental income

Millions of landlords could be hit by a plan to impose National Insurance contributions on rental income to generate around £2 billion in additional revenue.

Treasury sources have told The Times that the Chancellor, Rachel Reeves, wants to target ‘unearned income’.

The idea is being floated to tackle a £40 billion deficit in public finances, and it is being championed by some Labour MPs.

In doing so, Ms Reeves will maintain her bid to avoid breaching pre-election commitments not to increase VAT, income tax or existing National Insurance rates.

Landlords could sell up

Critics of the plan are already lining up with Sarah Coles, the head of personal finance at Hargreaves Lansdown, saying: “The British love affair with property could be tested to destruction.

“The latest Budget rumour is that National Insurance could be payable on the profits from rental income.

“Property is already one of the least tax-efficient ways to invest, and by adding to the mountain of tax paid by landlords, it may persuade even more of them to sell up.”

She added that landlords already face an array of taxes including a stamp duty surcharge, paying income tax on profits from rental income and because the income tax thresholds have been frozen since 2021, more landlords are paying higher rates and facing bigger tax bills.

Landlords have ‘unearned income’

The Times reports sources close to the Budget preparations saying that applying National Insurance to rental income would broaden the scope of earnings subject to the levy, rather than altering its rate.

That’s a nuance likened to the recent decision to impose VAT on private school fees.

One Labour insider said: “Property income is a significant potential extra source of funds.”

They added that landlords were seen as a way of targeting ‘unearned revenue’.

Official data shows that net property income reached £27 billion in 2022-23, so an 8% National Insurance charge on this amount could yield £2.18 billion.

Smaller landlords hit

However, the structure of the levy could disproportionately impact smaller landlords.

For instance, those earning between £50,000 and £70,000, a group of 360,000 landlords generating £4.76 billion, could face an additional annual bill of £1,057 if the standard 8% rate is applied.

The existing National Insurance framework reduces to 2% for earnings above £50,000, which could exacerbate the burden on smaller property owners.

The proposal, initially floated by the Resolution Foundation last September under the leadership of Torsten Bell, who has since become a Labour MP and key figure in Ms Reeves’s budget team, was shelved but has resurfaced as a viable option.

With 2.2 million individuals reporting property income and 19% of households renting privately, according to the English Housing Survey, the policy could have far-reaching implications.

Accelerate the landlord exodus

Shaun Moore, a tax and financial planning expert at Quilter, said: “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.

“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.”

He added: “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.”