Landlords Brace For More Taxes
Have you heard the one about the Chancellor strapped for cash, who thought private landlords would be good for it?
If it were a joke, I would be looking forward to the punchline but sadly, it would appear that someone in the treasury thinks a few words in the coming Autumn statement announcing charging National Insurance on rental income would plug a big hole….
What Do We Know?
The short answer is 'absolutely nothing other than what everyone else knows, the Chancellor has to find a lot of money somewhere, else she will not be able to meet her targets'.
However, the Cabinet and / or the Treasury are either 'briefing' to soften the blow when it comes or sounding out the possibility to see if it is a viable option – and we all know that when a government body needs more cash, taking it from landlords is far more attractive to the wider public than say, reducing benefits or raising income tax.
How might it work / what might it cost?
Our big fear is that if it is introduced, it will follow the model of the Section 24 tax changes introduced by George Osborne in 2016 which still cause him to be remembered and hated by landlords of all political persuasions. That change argued that although finance costs were a business expense, letting was not a proper business and private individuals did not get mortgage interest relief, so why should private landlords.
The net effect has been that many private landlords now make a loss after tax, as income less expenses and tax ends up as a loss. This has driven many from the sector and most new arrivals buy houses under a corporate wrapper which allows them to charge finance costs before calculating tax due, the same as any other business. It would be interesting to see how much George thought the change would raise and how much it actually raised along with data on the proportion of 'sole trader' private landlords to corporate landlords then and now.
So, what would an NI charge on rentals look like?
Well – hopefully it will only be charged on profit but knowing the chancellor wants lots of money, the chances of that look slim. More likely she will follow the S24 example and either charge it on total rental income or on net rental income before finance charges.
If she treats it in the same way as any other self-employed person, it will be charged at 6% but obviously she may pick another number – so a basic rate taxpayer paying income tax at 20% will suddenly find themselves paying 26% but worse than that, it could be on gross rental income or net before finance rather than net / profit and for higher rate taxpayers that equates to 46% or 51% in the worst case.
And remember, these percentages could be applied to your income less expenses (excluding finance costs) and if that is the case, it is a supercharged version of Section 24 and will push even more sole trader landlords into a loss making position.
We suggest you watch this one closely and work out what it will mean for you, if introduced - many of us have left rents at fairly low levels, knowing our tenants are struggling but this may be the change that forces many more landlords to bring their rents into line with market rates which will be bad for everyone.