Landlords could be hit with a national insurance (NI) levy on rental income in the Autumn Budget if the latest rumours about Treasury proposals are to be believed. This appears to be a kite flying exercise with no available detail on how it will work. But for Rachel Reeves, landlords could be an easy target as their income falls outside the “protected” trio of Income Tax, NI and VAT which the government says will not be increased.
The imposition of NI on rents might be justified by reeves as an extension of the tax to unearned income rather than an increase in the NI rate. The national insurance rate is 8% on income up to £50,270, then 2% thereafter. It is possible the proposed charge could be NI levy, a 1-3% surcharge.
The Treasury always declines to comment on tax policy in advance of a Budget so it is likely that the speculation will continue.
The potential of a Treasury NI tax grab on landlords is reminiscent of the major changes introduced in April 2017, when many of the tax advantages for buy-to-let If the rumours are true, the proposal would be another significant blow to the BTL sector.
Moreover, an additional NI tax risks accelerating the exodus of landlords from the market. In any event, the addition of NI would most likely be passed on to tenants through higher rents.
Raising NI on landlord is easy for HMRC to administer as rental income is reported on annual self-assessment tax returns. The introduction of Making Tax Digital for Income Tax from April 2026 means that landlords with incomes over £50,000 a year will have to file quarterly updates with HMRC, as well as a year-end tax return.
With a reported £50bn budget hole to fill, the chancellor is looking for for easy tax wins, with reports the Treasury thinks NI on property income could raise £2bn, but it is not clear whether this is a year or over the course of the parliament until the next general election in 2029.
Landlords are an easy target for Reeves, but this sector has been hit by soaring interest rates, which in turn has resulted in astronomical rental costs. There are other options to reform tax for landlords - for example by revisiting the 2017 changes to mortgage interest relief.
Allowing landlords to deduct mortgage interest before calculating taxable income, then applying income tax, and even NI if necessary, would create a fairer system, reduce the incentive for landlords to incorporate, ensuring the Treasury raises revenue without destabilising the rental market.
This is the latest blow for property owners, after noises last week of the possible removal of capital gains tax relief for higher value properties and new proposals for changes to stamp duty land tax (SDLT) for sales over £500,000, which would be punitive for property owners.
A date for the autumn Budget has not yet been set.
Peter Nichols FFA FTA FIPA Cert PFS
Director - BFN Accounts & Tax - www.bfnaccounts.com.