The Treasury is reportedly considering a new tax on landlords, with rental income potentially being brought into the scope of national insurance in the upcoming Autumn Budget.
The move would see the national insurance system – which currently does not cover property-related earnings – extended as part of efforts to plug an estimated £40bn shortfall in the nation’s finances.
Labour insiders, cited by The Times, described rental income as “a significant potential extra source of funds,” portraying landlords as benefiting from “unearned income.”
At present, national insurance is not levied on income from property, savings, or pensions. However, applying the 8% charge – which usually falls on employee wages – to rental earnings could raise around £2bn.
A landlord earning between £50,000 and £70,000 from property could face an extra £1,000 in tax annually.
The latest announcement comes amid a series of reports on the government’s wider property market measures expected in this year’s Budget.
Earlier this month, Treasury insiders revealed plans for a new levy on property sales above £500,000, as part of a broader shake-up of stamp duty and council tax.
Sources said that senior ministers have instructed officials to explore how a “proportional” property tax might work and to model its impact.
Initial work is focused on the creation of a national property tax that would replace stamp duty on owner-occupied homes. In the longer term, officials are also examining whether this system could pave the way for a local property tax to replace council tax, providing fresh revenues for struggling councils.
It has also been suggested that the new tax could be paid by the seller, rather than the buyer.
Shaun Moore, tax and financial planning expert at Quilter, commented: "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. 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.
"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 NI would almost certainly be passed on to renters through higher rents, compounding the problem.
"We would also expect 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.
"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."
Marc von Grundherr, director at Benham & Reeves, said: “This move smacks of political point-scoring rather than sound housing policy. Applying national insurance to rental income threatens to undermine rental supply by squeezing small and medium-scale landlords, who may pull up stakes or restructure.
"We’re already seeing supply pressures in many areas, pushing costs onto tenants. A policy with such serious unintended consequences deserves more scrutiny and a strategic approach, not partisan theatre.”
Jeremy Leaf, north London estate agent and former RICS residential chairman, commented: “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. These plans might generate some additional revenue but at what cost?
“Landlords are already being clobbered by tax and regulatory changes which have reduced their profits and increased operating costs. On top of that, the Renters' Rights Bill is imminent. 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. This could result in in even lower supply, creating less choice, lower standards and high rents which is what governments want to avoid.
“As we have seen with the recent property tax proposals, 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. Buyers may be wondering why they should pay stamp duty now if they won’t have to after the Budget if changes are introduced. This could have the effect of compromising the market. I have already spoken to two landlords this morning who are asking 'what’s the point?’ following the NI rumours. Anything that is unsettling and compromises confidence is bad news for the housing market, even if it never actually comes to pass.”
Sam Humphreys, head of M&A at Dwelly, added: “The reality is that many landlords already operate on fine margins, and measures like this could be the tipping point that drives them out of the sector altogether.
"Once stock is lost, it is incredibly difficult to rebuild, and the people who pay the price are tenants facing rising rents and fewer housing choices.
"If the Government wants to improve affordability, it should be working to increase supply - not choking it further with punitive taxation.”
