The Chancellor wants to tax landlords via National Insurance on rental income in a move that could raise over £2bn for the Government, it is reported.

As Labour struggles to reduce its £40bn budget shortfall without crossing red lines on income tax or VAT, it is said to be ‘eyeing up’ the substantial amount of money locked up in property as a potential source of alternative revenue.

£2.18 billion

And, according to a report in the Times, the focus has now moved onto what Labour describes as landlords’ ‘unearned income’ – rents. In 2022-23, there was £27 billion of net property income, so if National Insurance was levied at the standard 8%, then it would generate around  £2.18 billion, according to the latest figures.

It would mean that a landlord earning between £50,000 and £70,000 from their properties would have to pay an additional £1,057 in tax each year.

But because landlords already face increases in their costs and legislative burdens, industry insiders warn it could result in many selling up. Supporters of the plan argue that if the plan goes ahead, it would result in lower house prices, enabling renters to get onto the property ladder.

Working people

HM Treasury has declined to comment directly on the leak but said: “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, which is why at last autumn’s budget, we protected working people’s payslips and kept our promise not to raise the basic, higher or additional rates of income tax, employee national insurance, or VAT.”

Industry reaction

Ben Beadle, Chief Executive of the National Residential Landlords Association

“Further punitive tax hikes on the rental sector will lead only to rents going up, hitting the very households the Government wants to protect,.” he says.

“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.

“Analysis by Savills shows that up to one million new rental homes will be needed by 2031 to meet demand. Given this, the Chancellor should be using the tax system to encourage long term investment in new good quality rental housing.

“She should also heed the advice of the Committee on Fuel Poverty and reform the tax system to support investment in energy efficiency improvements.”

Adam Corlett, principal economist at the influential Resolution Foundation

“With tax rises clearly coming this autumn, the chancellor should use this as an opportunity to make the tax system fairer and more efficient,” he says.

“One way to achieve this is to ensure different forms of income are taxed at the same rate, for example, by levying national insurance on income from rental properties.

“After all, there’s no good reason why landlords should face lower tax rates than their tenants.”

Tom Bill, Head of UK Residential Research at Knight Frank

“Targeting landlords won’t lose the Government many votes, but such moves invariably end up hurting tenants,” he says.

“With landlords already selling up ahead of the Renters’ Rights Bill and tougher green regulations, another disincentive would reduce supply further and put upwards pressure on rents.

“Those that stay may pass on the extra costs in other ways. Governments need to fully appreciate that when you tax an activity, you get less of it.”

Marc von Grundherr, Director at Benham & Reeves

“This move smacks of political point-scoring rather than sound housing policy,” he says.

“Applying national insurance to rental income threatens to undermine rental supply by squeezing small and medium-scale landlords, who may pull up stakes or restructure.

We’re already seeing supply pressures in many areas, pushing costs onto tenants.

“A policy with such serious unintended consequences deserves more scrutiny and a strategic approach, not partisan theatre.”

Siân Hemmings-Metcalfe, Operations Director at Inventory Base

“Layering yet another financial burden onto landlords, at a time when the Renters’ Rights Bill is about to reshape the sector, is a move too far,” she says.

The focus should be on stability and encouraging long-term investment into the rental market, not short-term populism designed to plug holes in the Treasury’s coffers.

Policies like this risk deterring responsible landlords, which ultimately undermines the very protections and standards tenants are being promised.”

Sam Humphreys, Head of M&A at Dwelly

“The reality is that many landlords already operate on fine margins, and measures like this could be the tipping point that drives them out of the sector altogether,” he says.

“Once stock is lost, it is incredibly difficult to rebuild, and the people who pay the price are tenants facing rising rents and fewer housing choices.

“If the Government wants to improve affordability, it should be working to increase supply – not choking it further with punitive taxation.”