Yet another tax on landlords in the form of National Insurance contributions would result in fewer smaller landlords and more corporate ownership.
That is according to Nick Latimer, partner, private clients, at tax planning and wealth management firm, Crowe.
Latimer said: “Applying National Insurance to landlords’ rental income runs the risk of placing dampeners on the property market by incentivising corporate ownership and dis-incentivising individual landlords.
“By discouraging ‘smaller’ landlords, we would expect reductions in available rental properties and more rent increases for tenants to grapple with.”
Landlords currently have to cope with a 5% stamp duty surcharge. Meanwhile those operating as an individual, rather than a limited company, lost mortgage income tax relief on income in 2020. Instead they can only benefit from a 20% tax credit.
Mark Stemp, partner, private clients, at Crowe, said: “National Insurance applies to earned income, whereas rental profits are classed as unearned income and, in most cases, are perceived more as investment income than a business.
“Recent increases in property taxes have already led to lower returns for landlords. This is compounded by non-tax pressures, such as the new rules under the Rental Reform Bill and a requirement to increase the EPC rating, which will also eat into landlords’ returns.
“As a result, landlords are passing these additional costs onto tenants, making rent increases the likely consequence of further tax increases.
“Many private landlords are already considering a partial exit from the rental market by strategically selling underperforming property – a contracting private rental sector is a step in the wrong direction, especially given that government policy would arguably be expected to support the expansion of rental housing supply.
“If this trend continues, a contracting market will lead to a further shortage of properties for tenants, producing more tenant competition and driving rents up even further.”
The Autumn Budget generally takes place in late October or early November.