The Treasury is said to be weighing up plans for a new levy on landlords, with rental income potentially coming under the scope of national insurance in the Autumn Budget.
Under the proposals, the national insurance system – which currently excludes property income – would be expanded as part of wider efforts to address a projected £40bn gap in the public finances.
According to Labour sources quoted by the Times, rental earnings were viewed as “a significant potential extra source of funds”, with landlords framed as drawing on “unearned income”.
At present, income from property, savings and pensions falls outside the national insurance net. But extending the 8% charge, which usually applies to employee wages, to rental earnings could generate in the region of £2bn.
A landlord earning between £50,000 and £70,000 from property could face an extra £1,000 in tax annually.
The announcement is the latest in a string of reports surrounding the government's plans for the property market in this year's Budget.
Earlier this month, government insiders reported that homeowners selling properties valued above £500,000 could face a new levy, as the Treasury explores a radical redesign of the way housing is taxed.
Chancellor Rachel Reeves has reportedly asked officials to draw up options for a “proportional” property tax that could ultimately replace stamp duty and, in time, council tax.
Sources said the first stage under consideration is a national property tax on sales of homes worth more than £500,000, with rates set by central government.
Tom Bill, head of UK residential research at Knight Frank, said: “Targeting landlords won’t lose the government many votes but such moves invariably end up hurting tenants. With landlords already selling up ahead of the Renters’ Rights Bill and tougher green regulations, another disincentive would reduce supply further and put upwards pressure on rents. Those that stay may pass on the extra costs in other ways. Governments need to fully appreciate that when you tax an activity, you get less of it.”
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."
Ben Beadle, chief executive of the National Residential Landlords Association, said: “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.”
Siân Hemmings-Metcalfe, Operations Director at Inventory Base, added: “Layering yet another financial burden onto landlords, at a time when the Renters’ Rights Bill is about to reshape the sector, is a move too far.
"The focus should be on stability and encouraging long-term investment into the rental market, not short-term populism designed to plug holes in the Treasury's coffers.
"Policies like this risk deterring responsible landlords, which ultimately undermines the very protections and standards tenants are being promised.”
