Towards the end of August the government gave a tip-off to the major newspapers about a potential new tax reform that could see National Insurance Contributions (NICs) applied to rental income - a first for the UK. We’ve pulled together a quick summary of what’s being proposed, how it might work, and what it could mean for landlords, based on our latest analysis.
Overview of the proposal
The government is exploring a change that would bring rental income in line with employment income by applying NICs to profits. As always, the devil’s in the detail—particularly around the definition of “profit.” While not confirmed, it’s likely that NICs would be levied on pre-mortgage profits, which could significantly affect landlords’ bottom lines.
The proposed structure:
- - 8% NIC on rental profits up to £50,270.
- - 2% NIC on profits above that.
- - NICs would apply only to profits, not gross rental income.
How It Could Work
Our analysis shows that the typical landlord in 2025 earns £16,478 in rental income and pays £7,875 towards their mortgage, leaving a pre-tax profit of £3,495.
- - A basic-rate taxpayer would currently pay £699 in income tax. With NICs added, this would more than double to £1,609, assuming their personal allowance is used up by other income.
- - A higher-rate taxpayer would see their tax bill rise from £2,973 to £3,200, leaving just £295 in annual profit.
What It Could Mean
Introducing National Insurance on rental income would mark another significant shift in how landlords are taxed and would undoubtedly squeeze profitability further. While the charge is expected to apply to profits, the definition of ‘profit’ is key. If calculated before mortgage interest relief, it would amplify the chances of higher-rate taxpaying landlords having to pay tax on properties that are loss-making. But unlike the removal of Section 24—which hit higher-rate taxpayers hardest—this proposal could have a greater impact on lower-income landlords, many of whom rely on rental income to supplement modest earnings or pensions.
Unlike recent reforms that targeted specific groups, this change would affect almost all landlords who own buy-to-lets in their personal name. However, it’s not a blanket impact—National Insurance isn’t payable after state pension age, and with around a third of landlords now over 65, many may be unaffected. In practice, this could disproportionately impact younger landlords who tend to own fewer properties with less equity.
It’s also worth noting that rental income held within a company structure wouldn’t be subject to National Insurance, adding to the growing list of reasons to incorporate. We estimate that around 20% of buy-to-lets are now held in limited companies, and that figure could continue rising if this proposal moves forward.
The reform was initially proposed by the Resolution Foundation, who estimate it could raise up to £3 billion a year. However, given the number of landlords who would be exempt, we estimate that a more realistic figure is closer to £1 billion. With around 3.1 million landlords across the UK owning buy-to-lets in both personal and company names, we estimate that approximately 40% would be ineligible to pay NICs.
