The Treasury is exploring plans to impose National Insurance contributions on landlords’ rental income in a move that could raise approximately £2 billion annually but risks driving up rents across Britain as property owners pass costs to tenants.
Under the proposals being considered ahead of Chancellor Rachel Reeves’ autumn budget, landlords would pay contributions on rental profits exceeding £12,570 per year, matching the threshold currently applied to employment income. The scheme forms part of efforts to plug what Treasury sources describe as a £50 billion gap in public finances.
The proposed levy would charge eight per cent on rental profits between £12,570 and £50,270, with a two per cent rate applying to amounts above this higher threshold. These rates mirror existing National Insurance contributions paid by employees on their salaries, extending the tax to what Labour insiders have described as “unearned income.”
Dramatic Impact on Small Landlords
Analysis reveals that lower-rate taxpaying property owners would face the most severe impact, with their annual tax obligations potentially more than doubling under the new system. The typical basic-rate landlord currently paying around £700 yearly could see this figure jump to approximately £1,600.
For a property owner earning £10,000 in rental profits, the additional National Insurance charge would increase their tax burden from £2,000 to £2,800 annually – representing a 40 per cent rise in their overall tax liability on rental income.
The proposals would create a disproportionate impact across different tax brackets. Whilst basic-rate taxpayers face substantial percentage increases in their bills, higher-rate taxpayers would experience more modest rises. A landlord in the 40 per cent tax bracket earning the same £10,000 rental profit would see their annual bill increase from £4,000 to just £4,200.
Existing Tax Burden
Property owners currently face income tax on their rental earnings, with rates determined by their total income including both employment and rental profits. Those earning between £12,571 and £50,270 pay 20 per cent, whilst income between £50,271 and £125,271 attracts 40 per cent tax, and earnings above this threshold are taxed at 45 per cent.
The sector has already absorbed significant tax changes since 2017, when property investors lost the ability to fully offset mortgage expenses against rental income. Previously, landlords could subtract their entire mortgage interest payments before calculating tax liability. Now they receive only a 20 per cent tax credit on these costs.
This change particularly affects higher-rate taxpayers, who formerly benefited from 40 per cent relief on mortgage expenses. A landlord receiving £1,000 monthly rent whilst paying £500 in mortgage interest must now pay tax on the full rental amount, receiving only partial relief through the credit system.
Pensioners Escape New Charge
The proposals would leave approximately one-third of property owners unaffected due to their retirement status, as National Insurance contributions cease at state pension age. This demographic often controls the most substantial property portfolios, meaning the levy would bypass many of the sector’s largest operators.
David Fell, lead analyst at property firm Hamptons, observed: “Unlike the impact of previous tax reforms, which hit higher-rate taxpayers hardest, levying National Insurance on rental income would primarily hit lower-rate taxpayers and younger landlords.”
The age distribution creates an uneven impact, with retired landlords holding significant portfolios facing no additional charges, whilst younger investors with smaller holdings would shoulder proportionally heavier burdens. This disparity could reshape the rental market’s demographic composition over time.
Industry Warns of Market Exodus
Property sector leaders have warned that additional taxation could trigger widespread market disruption and accelerate landlords’ exit from the sector. Shaun Moore, tax and financial planning expert at Quilter, cautioned the measure “would be another significant blow to the buy-to-let sector” and might “accelerate the exodus of landlords from the market.”
Ben Beadle, Chief Executive of the National Residential Landlords Association, stated: “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.”
Property owners already grapple with multiple regulatory changes, including the forthcoming Renters’ Rights Bill, which will abolish Section 21 ‘no-fault’ evictions, and stricter environmental standards requiring substantial investment in property improvements.
Rent Rises ‘Inevitable’
Tom Bill, head of UK residential research at Knight Frank, warned: “Targeting landlords won’t lose the Government many votes, but such moves invariably end up hurting tenants. Governments need to fully appreciate that when you tax an activity, you get less of it.”
Reduced rental property availability appears inevitable if landlords exit the market. Moore emphasised that “this imbalance will inevitably push rents even higher, worsening affordability for tenants and deepening the housing crisis.”
Analysis by property consultancy Savills shows that up to one million new rental homes will be needed by 2031 to meet demand. Critics argue the proposed tax changes work against this goal by discouraging investment in the sector.
Political Calculations
The Treasury has declined to comment directly on the leaked proposals but stated: “As set out in the Plan for Change, the best way to strengthen public finances is by growing the economy, which is our focus. We are committed to keeping taxes for working people as low as possible.”
The proposals allow Labour to claim it hasn’t breached election pledges not to raise VAT, income tax or National Insurance rates on employees. By extending National Insurance to rental income rather than increasing existing rates, the Chancellor can argue she’s honouring manifesto commitments whilst raising revenue.
Property income generated £27 billion in tax revenue during the 2022-23 financial year, making it an attractive target for additional taxation as the government seeks to address fiscal challenges without alienating core voters.
Limited Company Loophole
Industry experts predict the changes could accelerate the trend of landlords transferring properties into limited company structures to mitigate tax impacts. This shift could significantly reduce the government’s expected revenue boost whilst creating additional complexity in the rental market.
Sarah Coles, head of personal finance at Hargreaves Lansdown, warned: “Property is already one of the least tax-efficient ways to invest, and by adding to the mountain of tax paid by landlords, it may persuade even more of them to sell up.”
The latest proposals follow a summer of property tax speculation, including potential capital gains tax on homes worth over £1.5 million and discussions about replacing stamp duty with an annual property tax. Each suggestion has prompted warnings about unintended consequences for both the housing market and rental sector.
As the autumn budget approaches, landlords face uncertainty over their future tax obligations, with many already reconsidering their investment strategies in anticipation of further fiscal tightening targeting property wealth.
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Image Credit:
The Chancellor of the Exchequer and the Secretary of State for Defence hold a roundtable with the Defence & Economic Growth Taskforce — photo by Simon Walker / HM Treasury, taken on 28 May 2025 in London. Licensed under Creative Commons Attribution 2.0 Generic (CC BY 2.0)
