The UK government is considering a major change that could affect every landlord in the country. They want to charge National Insurance on rental income, which could completely change the profitability of landlords.
If this happens, landlords could pay thousands more in tax each year. But what does this actually mean for you, and how can you prepare for it?
What's Being Proposed?
Right now, landlords don't pay National Insurance on their rental income. You pay income tax on your rental profits, but that's it. The government wants to change this by adding an 8% National Insurance charge.
This isn't the only tax change hitting property owners. The government has also looked at:
• Capital Gains Tax on expensive homes (over £1.5 million)
• Getting rid of Stamp Duty (but not for landlords)
• A yearly property tax on homes worth over £500,000
With landlords earning about £27 billion in rental income each year, an 8% National Insurance charge could generate over £2 billion for the government.
Why Is This Happening?
The government needs to find £40 billion to balance the books. Chancellor Rachel Reeves promised not to raise VAT, income tax, or current National Insurance rates, so they're looking for new ways to raise money, and rental income is an easy target.
How Much Will This Cost You?
Let's make this simple with an example:
If you make £50,000 profit from your rental properties each year, you'd pay an extra £4,000 in National Insurance. That's £333 extra every month.
This comes on top of other recent changes like:
• Limits on claiming mortgage interest as expenses
• Higher Stamp Duty rates for landlords
Many landlords are finding their profits squeezed from all sides.
What Will Landlords Do?
When faced with higher costs, landlords typically do three things:
1. Put Up Rents: Most landlords will try to pass these costs on to tenants. With not enough rental properties available and high demand, many can get away with rent increases.
2. Sell Their Properties: Some landlords, especially those with just one or two properties, might decide it's not worth it anymore and sell up. This means fewer rental properties are available.
3. Move Properties Into Limited Companies: Some might put their properties into companies to avoid National Insurance, which can be costly and complicated.
What About Tenants?
Tenants are already struggling. The average UK rent is now £1,344 per month - up 6.7% from last year. Over three years, rents have gone up 21%. Most tenants now spend over a third of their income on rent.
If landlords start raising rents because of National Insurance, this will make things even worse for tenants. If landlords start selling their properties, there will be fewer places to rent, which could push rents up even more.
What Should Landlords Do Now?
Review Your Properties: Look at each property and determine whether it will still make money with higher taxes. Some might be worth keeping, and others might be better sold.
Check Your Numbers: Understand exactly how National Insurance would affect your income and cash flow. This is where Abode Accounting can help - we know precisely how these changes will impact property investors.
Consider Your Options: Consider whether putting properties into a company might help, but remember this comes with costs and complications.
Get Professional Help: The tax rules for landlords are becoming more complicated. Working with specialists like Abode Accounting who understand the property world is becoming essential, not just helpful.
Why Choose Abode Accounting?
Unlike general accountants, Abode Accounting specialises in helping landlords and letting agents. We work with all the software property professionals use, like SME Professional, ALTO, Reapit, and MRI. This means we can easily connect with your existing systems.
But here's the excellent news - Abode Accounting costs up to 50% less than traditional accountants. While other accountants might charge 25p per day or more, our biggest clients pay just 10p per day for full accounting support.
With tax rules becoming more complex and costs rising, having Abode Accounting on your side means you can focus on your properties while we handle the numbers and ensure you're not paying more tax than you need to.
Looking Forward
Whether or not National Insurance on rental income actually happens, one thing is clear: being a landlord is getting more complicated and expensive. The landlords who do well will be those who plan and get the proper professional support.
At Abode Accounting, we help landlords navigate these changes while keeping their costs low. We understand the property sector inside and out and are here to help you make the right decisions for your portfolio.
The Bottom Line
The proposed National Insurance changes could cost landlords thousands of pounds each year. But with proper planning and the right support from specialists like Abode Accounting, you can adapt to these changes and keep your property business profitable.
Don't wait until these changes happen and start planning now. Contact Abode Accounting to see how we can help you prepare for whatever comes next in the property world.
