The UK government is considering introducing a National Insurance tax on landlords’ rental income in the 2025 Budget. Find out how it affects private landlords, tenants, and why limited company landlords are exempt.
What Is the Proposed National Insurance Tax on Rental Income?
In 2025, reports suggest that Chancellor Rachel Reeves is exploring a new policy to apply National Insurance (NI) contributions to landlords’ rental income. Currently, rental income is exempt from NI since it’s classed as investment income rather than earned income.
The proposal could generate around £2 billion a year to help fill a £40 billion budget gap. The move is designed to make the tax system “fairer” by aligning rental profits with employment income.
How Much Could Landlords Pay Under the NI Tax?
If introduced, the NI levy on rental income could significantly increase landlords’ tax bills.
- Basic-rate landlords earning £16,500 in profit currently pay about £699 in income tax. Adding an 8% NI charge could raise the bill to £1,609.
- Higher-rate landlords could see their tax rise from £2,973 to £3,200, leaving them with minimal profit.
It’s expected that pensioner landlords would be exempt, along with those who own their rental properties through limited companies.
Why Limited Company Landlords Won’t Be Affected
A crucial detail for many investors: this proposed NI tax will not apply to landlords operating through a limited company.
Here’s why:
- Rental profits within a company are taxed under Corporation Tax, not income tax.
- National Insurance applies to salaries, not dividends. Most limited company landlords pay themselves via dividends, which carry no NI liability.
- This means that incorporated landlords would avoid the new NI charge, while individual landlords would face higher costs.
For some private landlords, this could strengthen the case for incorporation of buy-to-let portfolios, although the costs and tax implications of incorporation should always be carefully reviewed with a tax advisor.
Why This Matters for Tenants and the Housing Market
Experts warn that the proposed NI tax on landlords’ rental income could backfire by reducing the availability of rental homes:
- Many landlords may increase rents to cover higher tax bills.
- Smaller landlords might sell their properties, shrinking supply.
- Tenants could face higher rents and greater competition for fewer homes.
Industry voices argue that while the policy targets landlords, it’s tenants who will bear the brunt through rising costs.
Current National Insurance Rules for Rental Income
Right now, landlords do not usually pay National Insurance on rental income. Exceptions include:
- Furnished Holiday Lets (FHLs): Considered trading businesses and subject to NI.
- Active landlords: Those running a property business (20+ hours a week) may pay Class 2 NI contributions.
- Limited companies: Rental profits are taxed via Corporation Tax, and landlords only pay NI if they draw a salary. Dividends are NI-free.
Reactions to the Proposal
The proposed National Insurance charge on landlords has been met with strong criticism:
- Property experts call it a “punitive” tax that could force small landlords out of the market.
- Housing commentators warn that rents will rise, worsening affordability for tenants.
- Supporters argue it creates a fairer tax system, ensuring landlords contribute the same as working people.
Some politicians and commentators have even compared the plan to a “cunning but flawed” idea that risks hurting renters more than landlords.
Summary
If the National Insurance tax on rental income is introduced in the 2025 Budget, it will affect the majority of private landlords who own property in their own name. However, limited company landlords will not be impacted, as their profits are taxed differently.
While the government hopes to raise billions and promote fairness, the changes could shrink rental supply and put more pressure on tenants. For landlords, now is the time to:
- Review property finances.
- Explore whether incorporation could offer protection.
- Keep a close eye on the Autumn 2025 Budget.
