You don’t have to be a news hound to know that things aren’t going well for Rachel Reeves. She’s taken an economy that was starting to recover and skewered it. The problem is that she also said she would not increase taxes on “working people”. We know that she did of course do precisely this but what else can we do?
I’ve spoke a lot about ways that more could be squeezed from landlords but there is a rumour doing the rounds at the moment which nobody had on their bingo card. National Insurance on rental income. It wasn’t on the bingo cards because it has been dismissed in the past. National Insurance is only paid by people in trading businesses.
Trading businesses are typically businesses that qualify for things like Business Asset Disposal Relief on sale. The income from them also counts as relevant earnings for pension purposes. Losses from trading businesses can be offset against other sources of income as well. People that carry out treading businesses are also absolutely 100% “working people”. None of these things apply to rental income.
National Insurance also goes hand in hand with the ability to claim certain state benefits including maternity allowance. You also stop paying them when you hit state pension age.
Adding national insurance to rental income would be an admission that landlords are carrying out trading style activities but I cannot imagine for a second that any of the other tax rules that apply would be granted.
If for instance rental income was to be classed as learnings it could mean that they would also count as relevant earnings for pension payments. This would probably go against the grain of taking more from landlords.
Schrödinger
Erwin Schrödinger was a theoretical physicist who famously pondered about a cat in a box being both alive and dead at the same time and only on opening the box would the universe decide which it was (I know simplified but this is about tax after all!).
Reeves’ Red box currently has “rental income there” and it’s seemingly trading and investment until observed at some point in the future. Which will it be? Who knows! What we do know though is adding National Insurance to rents will simply push up rents and force more landlords to leave the sector. The general public will no doubt cheer as it happens.
Tax Rates
I’ve covered how a landlord can easily have a 240% tax rate before Yes, really – the 240% tax rate explained. Adding National Insurance as well will take the rate up to around 300%. So a tax bill of THREE TIMES the cash made on the rental.
Action
Landlords are business people. Just like any other business they have to pass on their costs to their customers. In this case the customers are tenants. There is a limit to what can be passed on and the Renters Rights Bill could bring in annuals caps on increases which will be a big issue.
Landlords are classically stoic.
We just keep taking the kicks. Can we as a group afford to take this kick though? I say no. It’s time to write to our MPs to make sure they understand what life is really like for some landlords.
Head over to find your MP and put some words together. Be sure to include your full name and address in your communications as they will gladly ignore you if you don’t let them know you are one of their constituents. Let them know that landlord cannot keep just happily taking the hits. Put your points in your own words when doing so. They gladly ignore templates as well and treat them all as a single submission.