Reeves to consider national insurance on landlords’ rental income
Rachel Reeves is considering a tax increase for UK landlords in this year’s Autumn budget as she attempts to fill a £40bn hole in the public finances.
The Chancellor is examining proposals for applying national insurance (NI) to rental income in the hope of raising £2bn.
Officials are drawing up options for tax rises in an attempt to avoid breaking the “red lines” set by Reeves before the general election, where she promised to not raise taxes for ‘working people’, according to The Times.
This has put her in a tight spot, with no room to increase VAT, income tax or national insurance.
Employee’s National Insurance is charged in bands, but typically employers deduct eight per cent from employees’ monthly pay between £242.01 to £967, and two per cent for earnings over £967.
Earnings from property, pensions and savings are currently largely exempt from NI contributions.
The expanded levy would not break Reeves’ red lines as it would not involve a rate raise, allies of the Chancellor told The Times.
Pressure on landlords ramps up
Net property income totalled £27bn from 2.2m people in 2022-23, according to official figures. An extra levy of 8 per cent would have generated £2.18bn.
But any change is likely to pile pressure on private landlords, which have seen their rental yields drop significantly since 2017 – although they make up around 84 per cent of the UK rental market.
Private landlords are 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.
Inflation, high interest rates and regulation stretching yields ever-further.
Shaun Moore, tax and financial planning expert at Quilter, said the move to tax incomes would “be another significant blow to the buy-to-let sector, which has already been squeezed from all angles in recent years”.
“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,” Moore said.
The National Institute of Economic and Social Research (NIESR) has estimated that taxes may have to go up by more than £50bn to cover costs and restore a credible headroom that will make bond traders more assured about Labour’s fiscal plans.
Capital Economics and other leading analysts believe taxes will have to rise in the range of £15bn to £25bn.
A HM Treasury spokesperson said: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy – which is our focus. Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8bn and cut borrowing by £3.4bn”
“We are committed to keeping taxes for working people as low as possible, which is why at last Autumn’s Budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of Income Tax, employee National Insurance, or VAT.”