Why applying National Insurance to rental income is a bad idea
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.
This is according to Shaun Moore (Tax and Financial Planning Expert at Quilter), who was commenting on recent media reports that Chancellor Rachel Reeves is considering a raft of property tax changes, including applying NI to the rental income of landlords.
Moore noted that landlords have faced a raft of changes, from the reduction in mortgage interest relief to tighter regulations and higher borrowing costs, making it increasingly difficult for amateur landlords to operate profitably.
On top of this, the abolition of ‘no-fault’ evictions under the Renters’ Rights Bill means landlords now face far greater challenges in regaining possession of their properties, adding another layer of complexity and risk to letting, he said.
“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 said.
“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.”
Moore also expects to see the increasingly popular practice of holding properties within a limited company structure skyrocket as landlords look for ways to mitigate the impact of these changes.
Ironically, this could mean the government’s expected revenue boost is far smaller than anticipated, while the unintended consequences for renters and the broader housing market could be severe, he said.
“A more balanced approach might be to revisit the 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 and reduce the incentive for landlords to incorporate, while still ensuring the Treasury raises revenue without destabilising the rental market.”
