National Insurance on rental income is the ‘final nail in the coffin’ for landlords

A Labour proposal to apply National Insurance contributions to rental income could be the ‘final nail in the coffin’ for private landlords, critics say.

The move will reshape the UK’s private rented sector with a dwindling property supply and soaring rents.

The plan, aimed at addressing a £40 billion public finance shortfall, targets landlords’ ‘unearned income’ and is expected to raise approximately £2 billion.

Chancellor Rachel Reeves is steering this initiative to uphold Labour’s pledge to avoid hiking VAT, income tax, or existing National Insurance rates.

Levy could devastate landlords

However, Mark Bailey, a partner at property auctioneers Landwood Group, says the additional levy could devastate landlords already grappling with tight margins.

He said: “Layering National Insurance on top of rental income risks being the nail in the coffin for landlords already stretched to the limit.

“Margins are wafer-thin thanks to soaring mortgage rates, tougher regulation and an existing tax burden.

“Add NI into the mix and staying in the market starts to make little financial sense.”

He added: “At Landwood, we’re already seeing landlords approaching us for controlled exits.

“Some are acting proactively, others are trying to protect their assets before it’s too late.”

Rents inevitably rise

Mr Bailey continued: “Every time property ownership becomes less profitable, supply shrinks.

“Fewer landlords remain in the market, fewer properties are available to rent, and rents inevitably rise.

“Yet policymakers often seem surprised when this happens.”

He adds: “National Insurance threats, coupled with suspected new levies on high-value homes and the removal of capital gains tax exemptions, don’t just affect landlords.

“They directly hit tenants too, making housing less affordable and intensifying pressure across the rental sector.

“This is a wider market issue where the private rented sector has long been a stabilising force, but measures that make investment less viable threaten to undermine the entire system.”

‘Tax could be the last nail in the coffin’

Mr Bailey’s claim that applying National Insurance contributions to rental income is the ‘final nail’ has been echoed by another property expert.

Charlie Newsome, a divisional director at wealth manager Rathbones, said: “Far from being ‘safe as houses’, the investment case for residential property has shifted dramatically.

“Slower price growth, higher borrowing costs and increasing regulation have combined to erode the appeal of property as an asset class.

“A new property tax could be the last nail in the coffin for property’s status as a viable investment and cause potentially tens of thousands of people planning for retirement to rethink their strategy.”

He added: “A tax that scales with property values risks deepening the housing crisis.

“It could even create the perverse outcome where less well-off homeowners in deprived urban areas where house prices are high are penalised more than wealthy homeowners in rural areas, where values are lower.”