Why landlords still have plenty to fear from Rachel Reeves’s Budget
Labour could force landlords to pay National Insurance on their rental income or even make them pay council tax as part of sweeping reforms, experts warn.
The Chancellor will reportedly spare property investors from her capital gains tax raid at this month’s Budget after Telegraph Money campaigned for Labour to end its war on landlords.
However, tax experts say there are several punitive measures Rachel Reeves could still impose on property owners to claw back revenue.
Ian Cook, of wealth manager Quilter, said it would be “logical” for the Government – which has repeatedly promised not to tax workers – to impose National Insurance on rental income.
Mr Cook said: “[Labour] could argue this isn’t a tax on working people, as it’s a passive income. They could say: ‘Why should you get away with not paying National Insurance when someone who is going into work every day pays it?’”
“The impact would be huge. It would act as another disincentive for landlords to buy property.”
Workers must pay 8pc of their income in National Insurance contributions, but currently landlords are not hit by the levy.
In August, The Telegraph revealed that City minister, Tulip Siddiq, called for “unearned income” such as rent on buy-to-let properties to be taxed more in line with wages, in a speech she gave in 2022.
Nimesh Shah, of accountancy firm Blick Rothenberg, said hitting landlords with National Insurance was “certainly a possibility” in the Budget.
Similarly, the Resolution Foundation think tank said income tax rates on rental income should be supplemented with a “new class” of National Insurance to “ensure more consistent tax rates across different types of income”.
Landlords may also be forced to pay their own council tax. Tim Stovold, of accountancy firm Moore Kingston Smith, told The Telegraph: “Labour could introduce a landlords council tax – so if you’re renting out a property you also pay.”
Experts said another “extremely tempting” measure Labour could adopt would be to increase stamp duty for landlords.
Stamp duty is charged when you buy a property. Residential rates range from 0pc of the first £250,000 of a property’s value to 12pc for the chunk over £1.5m.
Since 2016, second home owners have to pay an additional 3pc surcharge on top of residential rates.
Mr Cook said: “People have to move home – they have children, downsize, die. So I think it would be an extremely tempting option.
“It would also be very easy to implement, as the tax is collected at point of sale. The system is already in place. They would just have to turn the dial.”
Stamp duty land tax raised £11.6bn for the Exchequer in the 2023-24 tax year, according to the latest HMRC estimates. This is higher than the £7.5bn raised from inheritance tax.
Tim Stovold, of accountancy firm Moore Kingston Smith, said raising stamp duty is the “most likely” way in which the Chancellor could target buy-to-let investors.
He added Labour could clamp down on “AirBnB landlords” who may be avoiding VAT.
The rental of residential property is exempt from VAT. However, VAT is charged at the standard rate of 20pc on the rental of holiday accommodation.
It means some landlords at the more casual end of the market may technically be liable to pay VAT but do not currently do so, according to Mr Stovold.
He said: “VAT on property is an area that’s misunderstood. People think you aren’t charged VAT on rents. Property is typically an exempt asset, but sometimes it’s not.
“A buy-to-let that operates more like a hotel, or is advertised on Airbnb, or short-term lets with their own website – these are not your usual rental properties and can fall under the ‘holiday accommodation’ bracket.
“Renting out one property makes it unlikely HMRC would come after you. These rules already exist. [Enforcing them] would bring about a decent chunk of money – and a crackdown is probably overdue.”