Incoming tax hit for landlords?

The government is reportedly considering charging National Insurance on landlords’ rental income.

According to reports, politicians see this as a way to raise around £2 billion by taxing “unearned” income.

If rates are set in line with NI on employment income, rental income would be taxed at 8%. However, NI is only charged on employment income for workers up to the State Pension age (currently 66). No such cutoff date has been proposed for rental income, which would be bad news for the 42% of landlords (according to the English Housing Survey) who let property to contribute to a pension.

It would also be yet another cost for landlords, who have already weathered the restriction of mortgage interest relief, a stamp duty surcharge on purchases, and increasing costs of selective licensing. The incoming Renters’ Rights Bill is also set to impose new costs on them, while the total bill for upgrading properties to EPC C by 2030 has been estimated by Reapit at £24 billion.

According to Reapit Commercial Director Neil Cobbold, NI could be a powerful disincentive to private rented sector investment while also making life tougher for tenants.

“When you tax an activity, you get less of it. If this proposal lands, some landlords will pass on part or all of the cost to tenants. Others will decide the return is no longer worth it and sell up. Either way, supply tightens and rents rise.”

When will we know?

This year’s Autumn Budget is set to take place unusually late, on 26 November. While we can expect plenty of speculation in the meantime, we won’t get a final answer until then.

However, the government does appear to be looking into property sector taxes. Last month, we reported on a plan to replace stamp duty with a new home sales tax.

It seems likely that taxes will increase somewhere. The Chancellor is facing a reported fiscal ‘black hole’ of around £50 billion. If she sticks to her previous pledge not to raise taxes on working people, that limits her options considerably, and taxing landlords could be one of the few left.