I received a pile of emails from estate agents and financial advisers — otherwise known as people living in fear of losing their sinecures — during the course of yesterday about the possibility that the government might impose National Insurance charges on the income of people who receive rents in the UK. This rumour is going the rounds today and has now reached The Guardian, which has said:
The Treasury is reportedly considering a tax on landlords that will target income from rents in the autumn budget.
They added:
The proposals are centred on the expansion of national insurance to include rental income, which is currently exempt from the levy, as part of a broader push to plug a potential £40bn shortfall in the public finances.
Labour insiders told the Times that property income was “a significant potential extra source of funds” and landlords were seen as a way of targeting “unearned revenue”.
Currently, earnings from property, savings and pensions are largely exempt from national insurance. However, widening national insurance, which usually applied employee earnings at a rate of 8%, to include rental income could reportedly end up raising about £2bn.
I am, of course, pleased to note that the government is using some common sense on this issue. I recommended a charge equivalent to National Insurance on all forms of investment income in the Taxing Wealth Report.
I suggested that this charge should apply to interest, dividends, rent, receipts from trusts, capital gains, and other unearned sources of increase in a person's financial well-being over the course of a year. There is no ethical justification whatsoever for people who are at work being required to both pay National Insurance themselves and also suffer reduced wages as a consequence of their employers having to do so, which is, in fact, what happens as a consequence of the employer's National Insurance charge. I suggested, as a result, that the income tax rate on combined income from all these sources above a low limit of, maybe, £5,000 a year should be subject to a 15% income tax surcharge, which is still generous when compared to the comined 23% national insurance charge on most people's wages.
There is, of course, nothing new about this: a charge of this sort was introduced in the 1960s by a Labour government, and was not abolished until the mid-1980s by Margaret Thatcher. It would, then, be straightforward to reintroduce this charge.
Importantly, almost no changes to tax returns would be required, although, of course, the computation of tax liabilities would change a bit as a result.
I estimated that this would be one of the most effective changes that any Chancellor could make with regard to the taxation of income and gains derived from wealth, believing it might raise up to £18 billion a year in additional revenue for the government.
The rumour going around today suggests that what Rachel Reeves is considering would raise £2 billion, so it looks as if she might massively underutilises the potential in such a charge when if applied as I suggest, she could use it to provide her with the excuses she needs to:
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Remove the two-child benefit cap.
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Abolish the bedroom tax.
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Increase the personal allowance, at least for those on the lowest levels of earnings, so that some pensioners do not fall within the scope of tax charges on their investment income.
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Fully fund special educational needs programmes.
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Properly fund programmes to clear the asylum application backlog.
- Relax some of the rules around carers' allowances that have resulted in draconian penalties on some claimants.
- Increase disability benefits, which are currently under attack.
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And rather more besides.
I do, of course, stress that I know she does not need to raise revenue to do these things. However, since she insists that she does, my suggestion is that such a charge would provide her with the excuse to implement these essential changes, which will relieve stress in the UK and thus assist in the fight against fascism.
Will she actually make this necessary change? I obviously do not know. But I do think it would be appropriate if she did.
That said, I am aware of the backlash from pensioners if she were to impose this charge in full on them. In that case, it may be appropriate for them to have a higher tax-free allowance before this additional charge is levied. However, candidly, it is becoming increasingly hard to argue that pensioners on high incomes should be treated with such generosity.
All that being said, for once, it seems as if Racchel Reeves might just be moving very slightly in the right direction with regard to tax, and that has to be welcome if it is true.
Taking further action
If you want to write a letter to your MP on the issues raised in this blog post, there is a ChatGPT prompt to assist you in doing so, with full instructions, here.
One word of warning, though: please ensure you have the correct MP. ChatGPT can get it wrong.
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Perhaps Rachel could extend the requirement to pay NI to LLPs, investment trusts, financial services bonuses and so on?
I will do some more on that issue, probably next week. It is in the pipeline. NIs are paid by LLPs by the way – but at self employed rates , but only in the case of equity partners.
I’m not defending Reeves or landlords, but I will still note that in era of declining wages and pensions (and now AI), people become landlords to maintain or increase their earnings. Taxing rents (will it apply to lodgers?) may end up not being popular for people using the income to support things like their children etc. The wrong message might be delivered. People are now even renting out their parking spaces/drives.
My point is that landlordism is a symptom of other areas where the government is not proactive. There is a lack of joined up thinking.
A few years ago I was asked to do a map of a landlord in the London area of where his properties were. It turned out there were 1000 properties. Probably a billion pounds. The recent introduction of licencing in Scotland revealed 3 landlords in Edinburgh owned over 2000 properties. I suspect the idea most landlords have one or two properties to supplement their pension is a myth.
In absolute number many landlords own one or two properties.
I strongly suspect they do not control much of the market.
I always enjoy the contributions on this blog from PSR. He seems to have the ability to see the big picture on most issues. However, I found his contribution on Landlordism – and the taxation thereof – surprisingly restrained for once.
A thoroughgoing takedown of rampant Rentier activity was there for all to see on the Novara YouTube channel on Friday evening. This happens to be a specialist subject of theirs as two of their main presenters, Michael Walker and Aaron Bastani, have spoken extensively about having lived the nightmare of renting in London for many years. Michael actually ran a podcast on the subject for a time. He knows his onions. He appeared on Jeremy Vine the other day to enlighten those of us who haven’t thought much about this scandal recently. His friendly, incisive yet persuasive debating style was a joy to behold. A rare moment on this show which generally turns into the worst kind of unwatchable Punch and Judy rubbish.
But his colleagues don’t mind getting their hands really dirty. They drilled down forensically into the cesspit, starting at minute 25 here
https://www.youtube.com/watch?v=-ln2IlE2FDE
A fascinating exposé… They pulled no punches. We used to call much of this exploitative behaviour Rachmanism in my early years of renting in Central London in the 1960s. Good riddance to all of that! It’s high time people realised that this has become a systemic failure of our society once again.
One of the most surprising (to me anyway) Novara insights is the high level of home ownership in Communist countries compared to here and the USA. Young people who vote may be surprised at that. Watch and learn!
Thank you.
I will take a look.
Might fully funded Special Needs provision save money by reducing the current proportion of people in gaol who are illiterate?
The current proportion of illiterate persons in gaol is reliably reported to be 57%.
The current annual cost of a gaoled person is £50,000 per annum.
Yes
I will be dealing with this as soon as I can – there is a pile of stuff on my agenda today.
What about the state pension Richard?
This is probably the most miserly pension in the developed world at circa £220 per week to someone who has paid into the system for 50+ years
If the minimum living wage for an adult in this so called great country is 20+k per annum surely a pensioner cant be expected to live off this pittance?
That is an impossible question to answer. It is penal.
Pensioners aren’t expected to live off this pittance. A pensioner with no assets will typically receive in benefits (e.g. housing) an amount closer to £18k tax free, around the same net as someone on minimum wage. They get the same amount net despite having no commuting costs.
It’s also much more likely that pensioners do own their homes. The state pension is pretty much equivalent to what a minimum wage person has left after rent and council tax (which the retired person is likely to get discounts on).
Also, the reason the state pension is so low is because contributions in the UK are low. Most countries with state pensions ring fence contributions and at something like double what we pay.
You are grossly simplifying everything in this comment.
Nothing is nearly as simple as you suggest.
You are on trolling watch.
It’s a comment with a 400 word limit so there isn’t much room for nuance. The original question was why the state pension worked out as less than the minimum wage, the answer is that it normally works out as roughly the same income once benefits are taken into account.
There is a whole other question about whether the minimum wage or the state pension are enough to live on (I would say “no” without needing to give it a lot of thought) but I don’t think anyone should be claiming one group has it better than the other and pitching battles.
And I repeat, your assumptions make this claim invalid in far too many cases.
A step in the right direction? We can only hope.
Of course this will lead to further problems in the rental market. More private landlords will sell and others will pass on the cost. Either way rents will go up. Reeves never considers the second order effect.
There is no logic to your comment.
If they sell, people will still use the accommadation.
And will they be able to pass on costs? If so, the case for rent regulation is made.
If they sell then it goes to private ownership so there is one property less to rent. Typically fewer people live in a property owner occupied than rented. Generally more people will physically live in a rented property, this is especially true of the young.
I would reply, but you are already showing on your second comment the classic patterns of behaviour of a troll, so I cannot be bothered to do so.
Whilst I broadly agree, I have a concern that applying it to rental income will just fuel rent increases. Landlords are not known for absorbing tax charges, they are always passed on to the tenant in the form of rent increases.
Obviously this could be prevented by the new rent act you have suggested in an earlier post but I’m not expecting that anytime soon, so I am expecting higher rents to come.
I will return to this issue
When a Rent Act comes into play is to possible for legislation to pass that any landlord who doesn’t abide by it has his property acquired by the State at an “appropriate price”? This would be one way to sort out problems in the rental market?
That would be my choice – but this would have to be subject to rules, including the fact that at current rates it is not viable as a rental property, and full consideration of condition would be required so that it was brought up to spcial letting standards.
A very good and fairly easy explanation of what is for the vast majority, a difficult topic. No more difficult than professional plumbing, decorating or car mechanics, yet most people run a mile from trying to understand finance. The same people seem to know an awful lot about the other things I mentioned. When it comes to finance, they are locked into the ‘household fallacy’ and cannot escape from it.
My second point is those who do grasp the finance nettle overlook the obvious question of ‘cui bono?’ To be fair, there are very many honest professionals working in finance, arguably the vast majority. As you get near the upper echelons of firms in finance, you are much more likely to encounter ruthless and crooked types who are most definitely working purely for their own enrichment that of a principal or client in the same mould. This enrichment is blind to any consequences for the state or its citizens. In other words, they will only do what suits them, so they benefit.
When you get powerful politicians( Trump) who are in this category, they have a disproportionate effect on markets as well as gov monetary and fiscal policies.
Where is Rachel Reeves in this? Does she give a shit, or is she preparing for her directorships when she goes?
We know the answer by her actions, just like Osborne. He’s on more boards than Cheshire cheese.
As a tenant I do fear that such tax on landlords will only result in it being passed on with higher rents.
We know there are no rent controls, and Labour have no plans to introduce any.
Affordable housing is impossible to find.
Tenants have little to no power, landlords and the vested interests of the housing market have it all.
I’m not convinced that the Rental Reform Act, due next year, currently held up by Tories in the House of Lords, will do much to change anything. Will Labour police it? The Tories introduced some laws to protect tenants – they never policed it.
The one question that is never addressed about housing, whether Tory or Labour, is affordability, and we know rents are horrendous already. Reform, if they got in power, would make things substantially worse.
I’m totally in favour in the wealthy, landlords or otherwise, paying what is right for a fair society, but neoliberal government’s have a habit of failing to address the root causes of problems, especially when it comes to money.
Labour are playing the old trick of a sticking plaster here and there, without addressing the whole issue.
If taxed, I’ve no doubt that many landlords will just pass it on. Government will turn a blind eye about who is really paying.
I just say this as someone who has been at the sharp end of renting for over forty years. Protection for those who are renting just does not exist.
There is a video coming on this on Monday, I think (these things always remain a little flexible)
As a small landlord with two and a third properties a few extra percent tax on our profit is hardly a game changer for us. All three properties are rented at a good bit below market rates, but all three have been on constant tenancy for some years with no voids. We manage and maintain them mostly ourselves, I am lucky here being a semi retired but still gas registered plumber. Keeping overheads as low as possible while not letting the property fall apart is key imho, not paying useless agency fees helps too. There are ways to make a living while not fleecing tenants. Just need a bit of nouse really.
Thanks
That is a hugely impressive list of positive actions that the government could do, just by adjusting what most here would see as an anomaly in tax rates. I would vote for a party making that proposal.
Though to be realistic, it would be hard politically to justify a 15% surcharge when the NI employee rate is 8%. While from an accountancy point of view you can argue that the employer rate is also a tax on people’s income most non-accountants wouldn’t really see it that way. And they have a point, if there is a reduction in employee NI there is a direct and immediate benefit to the employee’s net income; if employer NI was reduced the number of employers who would as a result raise salaries the next month would be vanishingly small.
So you might have to trim your wish list a bit but it is still worth doing. I wish I could be confident that Labour are thinking along those sorts of lines.
You arb ignoring the employer’s NIC rate – the combined rate is 23% and all is actually borne by employees as wage rates are reduced to allow for the employer contribution. Almost every economist, and most employers, would agree.
I wasn’t ignoring the fact of the combined rate, just pointing out what might be possible in political reality. Economists may say the employers’ contributions reduce pay rates, but 99% of the population are not economists. And as I point out above employers wouldn’t immediately increase salaries if they had a smaller NI contribution, even if in the long term it might allow a rebalancing of pay bills (e.g. might go to more staff rather than more pay).
I wonder if this is the converse of the “household budget” model for government expenditure being inappropriate to the macro situation. In this case,from a macro point of view employers’ NI reduces pay, but individual employees live in a micro economic reality where changes in employers’ NI have no obvious direct relevance to their monthly pay slip.
Ultimately, if a government proposed a surcharge of 15% those likely to lose out would attack it as unfair, and Daily Mail* readers seeing 8% on their own pay slip would agree. A proposal of 8% would still be attacked but there is a chance of it being recognised by the electorate as fair.
[*Other biased media are available].
We had such a rate for many years. I can see no reason why we could not gave it again. We’ll have to differ.
Apparently the UK’s largest residential landlord is Grainger PLC with what is often said to be 9100 properties though another recent source puts it at 11,000. A government report from 2022 indicated that 2.74 million landlords declared rental income in the 2020-2021 financial year.
Another source claims 94% of landlords are private individuals and about a third of those are retired, a bit over 40% of individual landlords have just one property
The average landlord portfolio was valued at £1.65 million in Q2 2023.
Clearly the term Landlords covers a very wide range
This list is the top 5 “Complete Landlords” in the UK, it defines “complete Landlords” as providers, operators or agents with more than 3,000 homes, that are responsible for all services in a Build to Rent development.
https://www.homeviews.com/business/industry-blog/the-top-5-complete-landlords-in-the-uk
Thanks
Although I agree with taxing rental income on principle, I would be concerned that if this measure was introduced in isolation the cost would end up falling on tenants rather than landlords through rent rises, disrepair of properties and poorly capitalised landlords (there are a lot of these overleveraged landlords and there really ought to be a higher LTV requirement for BTL mortgages) selling up and forcing their tenants to find new accommodation.
The Government really ought to support these measures with rent controls and a significant social housing spend, potentially buying up properties on the cheap from landlords who choose to exit the market.
Why can’t we just abolish works NI and roll in to general taxation. If we had NI at 12% the bands would become:
Band Taxable income Tax rate New Tax
Personal Allowance Up to £12,570 0% 0%
Basic rate £12,571 to £50,270 20% 32%
Higher rate £50,271 to £125,140 40% 52%
Additional rate over £125,140 45% 57%
This would be much simpler than the current system and would cover bother earned and unearned income.
Tell that to pensioners.
They vote.
They would not be happy.
That is why, so far.