A prominent think tank has called on the government to bring landlords’ rental income within the scope of National Insurance contributions (NICs), arguing that the change could raise billions for the Treasury and help address what it sees as favourable tax treatment for residential property investment.
The New Economics Foundation (NEF) has urged Labour to consider extending National Insurance to rental income as part of a wider package of tax reforms. In a recent report, the organisation claimed the move could generate up to £3.2bn in additional revenue.
The think tank argues that rental income is currently exempt from National Insurance, despite earnings from employment being subject to NICs. It described the current treatment as an “unwarranted tax exemption” and called for rental income to be included within the National Insurance system.
Most landlords currently pay income tax on rental profits but do not pay National Insurance because rental income is generally classified as investment income rather than earnings. Landlords can, however, make voluntary National Insurance contributions to maintain their entitlement to the state pension.
George Bangham, head of social policy at NEF, said: “When landlords make money from rental income, they are not asked to contribute the same as everyone else.
“This is clearly unfair, income from renting out a property should be treated the same as income from work.”
The NEF suggested that any extension of National Insurance to rental income could be accompanied by the reintroduction of mortgage interest relief, allowing landlords to offset finance costs and ensuring tax is levied on profits rather than gross income.
The proposal comes ahead of the Autumn Budget, when Chancellor Rachel Reeves is expected to outline the Government’s latest tax and spending plans.
The recommendation has already attracted criticism from some landlord representatives and commentators, who argue that additional taxes on landlords could increase operating costs and place further pressure on the private rented sector.
Chris Norris, chief policy officer at the National Residential Landlords Association, told the Telegraph: “Adding NICs to the panoply of taxes and financial burdens private landlords already have to contend with would be disastrous for their balance sheets.
“Landlords, facing already squeezed margins and a raft of reasons not to invest, would have little choice but to pass on the cost of yet another tax hike in the form of higher rents.”
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