What a new tax on rental income would mean for landlords - and your rent Landlords could face new taxes under plans reportedly being considered by the Treasury
08-30-2025
Landlords have been subjected to several policy changes over the past few years, which has seen many leave the market altogether
Laura Purkess
Landlords could face extra taxes under plans being considered by the Treasury.
The Government is examining proposals to apply national insurance (NI) to rental income in the hope of raising £2bn, according to The Times.
It comes as Labour desperately searches for tax rises that could help fill a hole in the public finances.
But some experts have warned that new taxes on rental income could end up hitting tenants, as landlords will seek to recoup the income they have lost.
What taxes do landlords pay now?
Most working people in the UK pay income tax and NI on their earnings.
Currently, income from property, pensions and savings is generally exempt from NI contributions.
These are only levied on employees and other income earned through work, at a rate of 8 per cent on annual earnings above £12,570 but below £50,270. Earnings above this are charged at a rate of 2 per cent.
However, landlords pay income tax at a higher rate than those who pay it on their employment income.
That is because landlords do not just pay income tax on their income – they pay it on their income after adding back in most of their mortgage interest.
For example, if a landlord earns £1,200 rent and pays £1,000 in mortgage interest a month, they would only receive £200 net income.
But under rules introduced in 2017, landlords do not get to deduct their mortgage interest, and instead they get a 20 per cent tax credit on mortgage interest. That means, if they are a higher rate taxpayer they pay 40 per cent tax on £1,200, minus 20 per cent of £1,000 – so they actually pay £280 tax on what effectively comes to £200 earnings.
Landlords also have to pay capital gains tax if they sell their investment property, which is charged at 18 per cent for basic-rate taxpayers and 24 per cent for higher-rate taxpayers.
This is on top of the stamp duty they pay when they buy an investment property. Landlords pay an extra 5 per cent on top of the normal rates, up to a maximum rate of 17 per cent.
They must also pay council tax on the property if it is empty. While it is occupied, the tenant typically pays the council tax bill.
What would NI mean for landlords?
According to sources, NI could be expanded to include rental income.
If implemented in the same way as NI on work earnings, it would be charged at 8 per cent on income between £1,048.01 and £4,189 a month, and 2 per cent on income above this.
Tom Darling, director at the Renters’ Reform Coalition, said: “If the Chancellor is looking for additional revenue she could do a lot worse than equalising national insurance contributions on landlord’s income – working people pay this tax on income, and that’s before landlords get a huge slice of it through rent.”
However, Shaun Moore, tax and financial planning expert at Quilter, said the move “would be another significant blow to the buy-to-let sector” and could risk “accelerating the exodus of landlords from the market“.
Landlords have had to content with a number of changes over the past few years, including the Renters’ Rights Bill, which experts have previously told The i Paper has led to landlords racing to sell off their properties at a loss.
Moore said: “Landlords have faced a raft of changes, from the reduction in mortgage interest relief to tighter regulations and higher borrowing costs, making it increasingly difficult for amateur landlords to operate profitably.
“On top of this, the abolition of ‘no-fault’ evictions under the Renters’ Rights Bill means landlords now face far greater challenges in regaining possession of their properties, adding another layer of complexity and risk to letting.”
What would it mean for renters?
However, experts say it would not just be landlords who feel the impact of the tax, as it is probable that landlords would have to pass on the additional costs to their tenants.
Moore added: “Introducing an additional tax burden risks accelerating the exodus of landlords from the market, further reducing the supply of rental properties at a time when demand remains high.
“This imbalance will inevitably push rents even higher, worsening affordability for tenants and deepening the housing crisis.
“Similarly, the addition of NI would almost certainly be passed on to renters through higher rents, compounding the problem.”
Tom Bill, head of UK residential research at Knight Frank, agreed that the move would ultimately fall on renters more than landlords.
“Targeting landlords won’t lose the Government many votes, but such moves invariably end up hurting tenants.
“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.”
The Treasury said it did not comment on speculation.
A spokesperson added: “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.”
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