National Insurance on Landlords: The Debate Intensifies
Chancellor Rachel Reeves’ plan to impose National Insurance (NI) on rental income has sparked controversy across the property sector. Labour is reportedly targeting “unearned income” from landlords to raise £2 billion to tackle a £40 billion public finance deficit, without breaching pre-election pledges not to increase VAT, income tax, or existing NI rates.
The proposal would apply an 8% NI charge on the £27 billion in net property income recorded in 2022-23, potentially generating £2.18 billion. A Labour insider described property income as a “significant potential extra source of funds.”
Generation Rent Pushes for NI
The activist group Generation Rent, chaired by former Labour MP Karen Buck, has long advocated for landlords to pay NI. They argue that landlords without mortgages currently pay a lower effective tax rate than workers in the same income bracket because wages are subject to NI. The group has also called for capital gains tax on property to be aligned with income tax rates, noting that property values often rise due to external market factors rather than landlord effort.
With chief executive Ben Twomey a former Labour candidate, Generation Rent’s lobbying highlights the close alignment between the campaign and Labour policy thinking.
Landlords Warn Tenants Will Pay
Property experts and landlord bodies have been vocal in opposition. 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.”
Ben Beadle, Chief Executive of the National Residential Landlords Association (NRLA), warned that additional tax hikes could push rents higher, hitting the households the government aims to protect. Existing pressures include last year’s stamp duty surcharge and proposed EPC upgrades costing up to £15,000 per property. Savills estimates that one million additional rental homes will be needed by 2031.
Small and medium-scale landlords are particularly at risk. Marc von Grundherr of Benham & Reeves called the proposal “political point-scoring,” while Sam Humphreys, Head of M&A at Dwelly, noted that many landlords operate on thin margins, leaving tenants vulnerable if landlords exit the market.
NRLA: Government May Have Miscalculated
The NRLA suggests the government has got its sums wrong regarding the NI threat. The Times reports that the most common property income bracket is £50,000–£70,000, yet the latest English Private Rental Survey shows the average gross rental income is just £19,200 a year, with net income much lower.
Other key findings include:
- 45% of landlords own just one rental property; 38% own two to four properties.
- 42% cite pension contributions as the reason for renting property, meaning NI would effectively tax pensions.
- 42% choose property investment over shares or bonds, making the proposal a tax on savings and investment income.
The NRLA argues this could make providing homes for rent less attractive, pushing landlords toward alternative investments, and leaving tenants to face higher rents and reduced choice. The association also warns that the reforms do nothing to support the up to one million new rental homes needed by 2031.
Corporate vs Individual Landlords
Legal expert Ian Narbeth points out that corporate landlords may escape the levy, while individuals — especially older landlords relying on rental income for pensions — could shoulder the brunt. “It may be that Mrs Jones, 78, a widowed nurse who relies on £10,000 a year rent from one inherited property, will pay more NI than Goldman Sachs or M&G,” Narbeth said.
This raises questions about fairness and potential regional disparities in housing supply.
HMO Sector at Risk
Any move to force NI payments on landlords is expected to hit HMO (Houses in Multiple Occupation) landlords first and hardest.
Vann Vogstad, founder of COHO, explains: “The Chancellor’s reported plan to introduce National Insurance on rental income in the upcoming Autumn Budget is likely to hit HMO and shared-living landlords hardest. These landlords typically generate higher rental income per property than standard buy-to-let investors, meaning they’ll shoulder a particularly large share of the proposed 8% levy.
While this might seem like a clever revenue-raising move from the Treasury’s perspective, it risks triggering serious consequences for the rental market. For many landlords, already squeezed by years of tightening regulation and tax changes, this could be the final straw, prompting them to exit the sector altogether.
The inevitable result would be a shrinking supply of rental properties and further upward pressure on rents at a time when tenants are already grappling with sky-high living costs. Even those landlords who stay in the market are likely to seek ways to recoup their losses, and raising rents will be the most direct route.
Tenants always seem to bear the brunt of government efforts to extract more from the rental sector. In this case, HMO tenants could be particularly vulnerable. These properties already face mounting barriers, including growing resistance from local authorities influenced by negative media narratives around shared housing. It would be a real blow to see this vital part of the market unnecessarily eroded.”
Landlords already pay income tax on profits, and NI currently applies only to earned income, with thresholds and rates for employed and self-employed individuals. Adding NI to rental income would mark a significant departure.
Market Shifts: Incorporation and Student Lets
Amid rising tax and regulatory pressures, landlords are increasingly turning to limited company structures. Pegasus Insight reports that 20% of landlords now own at least one property through a limited company, with incorporation most common among larger portfolios. The move offers tax efficiency and flexibility in borrowing.
The student accommodation sector is also emerging as an attractive option. Specialist lender Together reports that student HMOs can yield 7–9%, versus 5–6% across the wider PRS, with purpose-built student blocks offering lower management demands. Cities like Birmingham, Manchester, and Glasgow are seeing growing student demand.
Points For the Policy
- Tax Fairness: Rental income is currently treated more favourably than wages or self-employment income. NI on rents could level the playing field.
- Revenue Generation: Could raise £2 billion, helping address the fiscal gap without increasing headline taxes.
- Targeting “Unearned” Income: Politically appealing, taxing income from assets rather than work.
- Encouraging Homeownership: Could reduce buy-to-let investment, potentially freeing up homes for first-time buyers.
Points Against the Policy
- Risk of Driving Up Rents: Landlords may pass the cost on to tenants, worsening affordability.
- Reduced Rental Supply: Small landlords may exit, shrinking available housing and increasing rents.
- HMO Sector Hit First: Shared housing landlords will face disproportionately high tax bills, risking erosion of this vital segment.
- Uncertainty and Unintended Consequences: Frequent policy changes make long-term planning difficult.
- Discouraging Investment: Could make property less attractive compared with equities, slowing investment needed to meet growing rental demand.
- NRLA Evidence: Average landlord income is far lower than government assumptions, meaning the policy could effectively tax pensions and savings, hitting smaller, individual landlords hardest.
Policy vs Practical Reality
While the Treasury views the NI proposal as a way to tap a relatively untaxed revenue stream, the property sector warns it could shrink rental supply, accelerate landlord exits, and ultimately increase rents, disproportionately affecting tenants.
As the debate unfolds, the tension between raising government revenue and maintaining a healthy rental market remains stark — and landlords, tenants, and policymakers alike are watching closely.
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