Lettings agency giant Hamptons has calculated what impact the levying of National Insurance (NI) would have on landlords.
Landlords face paying NI on their rental income if plans leaked by HM Treasury over the summer make it into Rachel Reeves’ November budget. The Chancellor believes this extra tax on landlords will raise £.3 billion for the government as she struggles to plug a reported £40 billion hole in the nation’s finances.
Currently, landlords who own property in their personal name pay income tax on their profits, but not NICs.
Hamptons, in a special pre-Budget briefing, says the proposal floated by HM Treasury would change that, subjecting rental profits to NICs at a rate of 8% up to £50,270 and 2% thereafter – mirroring the treatment of employment income.
While not confirmed, it’s likely that NICs would be levied on pre-mortgage profits, which could significantly affect landlords’ bottom lines.
Hamptons’ analysis shows that a typical landlord earning £16,478 annually in rental income and paying £7,875 in mortgage interest would see their tax bill more than double –
from £699 to £1,609. A higher-rate taxpayer would see their tax bill rise from £2,973 to £3,200, leaving just £295 in profit.
The agency says this change would disproportionately affect younger landlords under pension age, who are not exempt from NI; unincorporated landlords, who make up around 80% of the buy-to-let market; and lower-income landlords, who may rely on rental income to supplement modest earnings or pensions.
One-third of landlords are over state pension age and would be exempt, while incorporated landlords would remain unaffected.
Hamptons notes: “While the reform would improve parity between rental and employment income, it risks further reducing the profitability of buy-to-let – particularly for those with high
mortgage costs and limited equity. The definition of ‘profit’ is key: if NI is applied before mortgage interest relief, it would amplify the chances of higher-rate taxpayers having to pay tax on loss-making properties.”
It adds that unlike the removal of mortgage interest relief (widely known by landlords as Section 24), which hit higher-rate taxpayers hardest, this proposal could have a greater impact on lower-income landlords.
Younger landlords, who typically have smaller equity buffers and higher mortgage costs, would be particularly exposed.
Originally proposed by the Resolution Foundation, the reform was estimated to raise up to £3 billion annually. However, with around 40% of the UK’s 3.1m landlords
likely to be exempt, Hamptons’ analysis suggests a more realistic figure is closer to £1 billion.
This article is taken from Landlord Today