Landlords may soon face higher tax bills as the government considers applying National Insurance (NI) contributions to rental income – a move that could be unveiled in chancellor Rachel Reeves’s Autumn Budget.
At present, rental income is subject to income tax, but exempt from National Insurance. Introducing NI charges on property income could raise up to £2bn annually, helping to plug a projected £40bn hole in public finances – without breaching Labour’s commitment not to raise the main rates of VAT, income tax, or NI for workers.
Under the proposal, a landlord earning between £50,000 and £70,000 from their portfolio could see their tax bill rise by approximately £1,000 per year.
Critics warn that the move could have unintended consequences for the rental sector.
Industry groups have raised concerns that the additional tax burden could force small and mid-sized landlords out of the market – reducing rental supply and driving up rents for tenants at a time when affordability is already stretched.
The measure is understood to be under active review as part of a wider set of fiscal options ahead of the Budget.
Ben Beadle, chief executive of the National Residential Landlords Association: “Further punitive tax hikes on the rental sector will lead only to rents going up, hitting the very households the Government wants to protect. It would come on top of last year’s increase to stamp duty on homes purchased to rent and proposals expecting landlords to pay up to £15,000 on energy efficiency improvements to properties.
“Analysis by Savills shows that up to one million new rental homes will be needed by 2031 to meet demand. Given this, the Chancellor should be using the tax system to encourage long term investment in new good quality rental housing. She should also heed the advice of the Committee on Fuel Poverty and reform the tax system to support investment in energy efficiency improvements.”
Tom Bill, head of UK residential research at Knight Frank: “Targeting landlords won’t lose the government many votes but such moves invariably end up hurting tenants. With landlords already selling up ahead of the Renters’ Rights Bill and tougher green regulations, another disincentive would reduce supply further and put upwards pressure on rents. Those that stay may pass on the extra costs in other ways. Governments need to fully appreciate that when you tax an activity, you get less of it.”
Marc von Grundherr, director at Benham & Reeves: “This move smacks of political point-scoring rather than sound housing policy. Applying national insurance to rental income threatens to undermine rental supply by squeezing small and medium-scale landlords, who may pull up stakes or restructure.
“We’re already seeing supply pressures in many areas, pushing costs onto tenants. A policy with such serious unintended consequences deserves more scrutiny and a strategic approach, not partisan theatre.”
Siân Hemmings-Metcalfe, operations director at Inventory Base: “Layering yet another financial burden onto landlords, at a time when the Renters’ Rights Bill is about to reshape the sector, is a move too far.
“The focus should be on stability and encouraging long-term investment into the rental market, not short-term populism designed to plug holes in the Treasury’s coffers.
“Policies like this risk deterring responsible landlords, which ultimately undermines the very protections and standards tenants are being promised.”
Jeremy Leaf, north London estate agent: “The government may feel there is a bit more fat on this calf and can take some of it but a lot of careful thought is needed. These plans might generate some additional revenue but at what cost?
“Landlords are already being clobbered by tax and regulatory changes which have reduced their profits and increased operating costs. On top of that, the Renters’ Rights Bill is imminent. As it is, it is widely appreciated that there isn’t enough rental property on the market and if this plan to charge national insurance comes to pass, this extra tax may just be the final straw. This could result in in even lower supply, creating less choice, lower standards and high rents which is what governments want to avoid.
“As we have seen with the recent property tax proposals, it is all very well to put these feelers out to gauge reaction but what isn’t always appreciated that even the rumour of change can be enough to put people off. Buyers may be wondering why they should pay stamp duty now if they won’t have to after the Budget if changes are introduced. This could have the effect of compromising the market. I have already spoken to two landlords this morning who are asking ‘what’s the point?’ following the NI rumours. Anything that is unsettling and compromises confidence is bad news for the housing market, even if it never actually comes to pass.”
Sam Humphreys, head of M&A at Dwelly: “The reality is that many landlords already operate on fine margins, and measures like this could be the tipping point that drives them out of the sector altogether.
“Once stock is lost, it is incredibly difficult to rebuild, and the people who pay the price are tenants facing rising rents and fewer housing choices.
“If the government wants to improve affordability, it should be working to increase supply – not choking it further with punitive taxation.”
Timothy Douglas, Head of Policy and Campaigns: “Landlords in the private rented sector have been impacted significantly by tax changes in recent years, such as reduced rates of mortgage interest relief and increased rates of property tax when purchasing a buy-to-let or expanding their portfolios.
“The UK government must understand the impact of these changes before embarking on further tax reforms that ultimately push up rent prices and reduce the number of much-needed properties to rent. Further tax imposition will mean less revenue for the Exchequer because it will drive landlords away from the market.
“We need policies that ensure the private rented sector can increase supply to meet the demand for homes to rent, making rents more affordable. This is the only way to improve the housing market for renters, and secure increased revenue for public services.”
Mark Stemp, partner, private clients at Crowe: “National Insurance applies to earned income, whereas rental profits are classed as unearned income and, in most cases, are perceived more as investment income than a business. Recent increases in property taxes have already led to lower returns for landlords. This is compounded by non-tax pressures, such as the new rules under the Rental Reform Bill and a requirement to increase the EPC rating, which will also eat into landlords’ returns. As a result, landlords are passing these additional costs onto tenants, making rent increases the likely consequence of further tax increases.
“Many private landlords are already considering a partial exit from the rental market by strategically selling underperforming property – a contracting private rental sector is a step in the wrong direction, especially given that government policy would arguably be expected to support the expansion of rental housing supply. If this trend continues, a contracting market will lead to a further shortage of properties for tenants, producing more tenant competition and driving rents up even further.”
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Read the orginal article: https://propertyindustryeye.com/industry-reacts-as-landlords-face-national-insurance-tax-proposal/
