First reported by The Telegraph, this will be one of the measures used by the Treasury to fill the £51bn black hole in the public’s finances, and this is speculated to raise around £2bn.
The Autumn Budget is expected to take place at the end of October or early November, and has already brought speculation of a property tax to replace stamp duty and taxing homeowners on the sale of high-value homes.
A ‘blow’ to BTL
Shaun Moore, tax and financial planning expert at Quilter, said applying 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”.
Moore added: “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.
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“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. This imbalance will inevitably push rents even higher, worsening affordability for tenants and deepening the housing crisis. Similarly, the addition of National Insurance would almost certainly be passed on to renters through higher rents, compounding the problem.”
Encouraging more limited company borrowing
Moore said this would push more landlords to hold properties in a limited company structure to reduce the impact of these changes.
He added: “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.
“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 National Insurance 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.”
More landlords could sell up
Sarah Coles, head of personal finance at Hargreaves Lansdown, said that by adding to the “mountain of tax” paid by landlords, more may sell up.
“Landlords have proven a rich source of tax over the years, but the government will also have an eye on the fact that landlords are already selling up. Figures out at the end of last year showed almost a third of landlords planned to cut the size of their portfolio in the next two years, and around a sixth planned to sell all their properties.
“It’s not just the higher tax burden; landlords are also facing the risk of higher mortgage rates when they renew their deals. Then there’s the extra cost of rules protecting tenant rights. For many of them, the maths doesn’t stack up, and while property prices are riding high, they have decided to cash out.”
Risk of rental rises
Coles also said there was a risk of tenants paying the price if fewer rental properties are available and rents increase as a result.
However, she said landlords disposing of properties could make more homes available to purchase and “keep a lid” on house prices, which could benefit first-time buyers.
Ben Beadle, chief executive of the National Residential Landlords Association (NRLA), added: “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.”
