National Insurance ‘final nail in coffin’ for landlords as some already seek exit
A national insurance raid on landlords’ rental income risks being the final straw for smaller landlords, with some already making plans to leave the sector.
The Chancellor is reportedly examining proposals for applying national insurance (NI) to rental income in the hope of raising £2bn. Earnings from property, pensions and savings are currently largely exempt from NI contributions.
But the rumours have already caused significant blowback from experts in property, with concerns it will lead to a squeeze on supply if landlords sell up and higher rents as landlords price the tax in.
“We’re already seeing landlords approaching us for controlled exits. Some are acting proactively, others are trying to protect their assets before it’s too late,” Mark Bailey, partner at property surveyance firm Landwood Group, said.
“Layering national insurance on top of rental income risks being the nail in the coffin for landlords already stretched to the limit… Margins are wafer-thin thanks to soaring mortgage rates, tougher regulation and an existing tax burden,” Bailey added.
Government policy in the last decade has substantially increased tax payable by private landlords, with private landlords only able to deduct 20 per cent of their mortgage interest from their rental income when calculating their tax bill, down from between 40 and 45 per cent in 2017.
Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “The government may feel there is a bit more fat on this calf and can take some of it but a lot of careful thought is needed.”
“As it is, it is widely appreciated that there isn’t enough rental property on the market and if this plan to charge national insurance comes to pass, this extra tax may just be the final straw,” he said.
Leaf add that “it is all very well” to put these feelers out to “gauge reaction”, but what “isn’t always appreciated that even the rumour of change can be enough to put people off”.
Surge in landlords using limited company structures
Just under half of UK landlords own just one rental property, and 38 per cent own between two and four rental properties.
Smaller landlords do not tend to funnel income through corporate structures, while professional operators – roughly classed as larger companies or landlords with many properties – do use limited company structures.
Tax and regulatory changes in the last decade have made it more attractive to use a corporate structure, where tax is lower, than to operate as a small landlord.
A move to add national insurance onto landlords’ income would further fuel this trend.
“Lenders are reporting a surge in landlords moving into limited company structures and portfolio lending,” Daniel Bell, Director & Mortgage Adviser at Bell Financial Solution, said.
“This tells us something crucial: the “accidental landlord” with one or two properties is being forced out, while the sector consolidates into the hands of professional operators.”
Bell said that a move away from small landlords will have “stark” consequences on the sector. “The rental market we’ve known for decades is on the brink of collapse.”