The UK government is weighing up a controversial new tax measure that would see landlords pay National Insurance contributions (NICs) on rental income, as Chancellor Rachel Reeves searches for ways to plug a £40 billion shortfall in the public finances.
Reeves, who will deliver her first autumn budget in the coming months, has been presented with proposals from Treasury officials to extend the National Insurance system to cover property earnings, currently exempt from the levy.
The plan, first reported by The Times, could generate an estimated £2 billion annually and has already reignited the political debate over how to make the tax system more equitable.
How the policy would work
At present, landlords pay income tax on rental profits but do not contribute National Insurance, which workers and the self‑employed are obliged to pay on wages and earnings.
Under the proposal, an 8% NIC rate would be applied to rental income up to £50,270, with a reduced 2% rate applicable to income above that threshold.
That approach would mirror how employees’ earnings are treated, while maintaining the reductions at higher income levels.
The measure builds directly on work by the Resolution Foundation think tank, which first suggested the reform as a way of closing loopholes in the current tax framework.
Adam Corlett, the think tank’s principal economist, argued landlords should not enjoy “lower tax rates than their tenants”. The group estimates that, if the employer component of NICs were also levied on rental income, annual revenues could rise closer to £3 billion.
A move to target “unearned” income
Government insiders describe the potential policy as part of a wider attempt to align taxation between earned and unearned income.
While wages and salaries are subject to National Insurance, property, pensions and savings income are largely exempt.
Advocates of the measure within Labour suggest that taxing rental profits in this way would improve fairness and send a political message that “those with unearned income should contribute more”.
However, critics have warned the approach could add to rents, dissuade investment in the private rented sector, and increase financial pressure on smaller landlords who already face a series of tax reforms introduced in recent years.
Mounting fiscal challenges
The debate comes at a pivotal moment for Chancellor Reeves.
The National Institute of Economic and Social Research (NIESR) has warned she faces a £41 billion gap between the government’s current trajectory and her target of balancing day‑to‑day spending with tax receipts by 2029‑30. Including the need to restore fiscal buffers, the effective hole could exceed £51 billion.
With Labour having pledged during the general election campaign not to increase VAT, income tax or NIC rates, Reeves is constrained in her options.
Her allies argue that expanding the scope of National Insurance to cover rental income does not technically represent a rate hike, and therefore would not breach manifesto commitments.
Nonetheless, the political risk is real. Any move to tax landlords more heavily could face backlash from property owners—many of whom argue they already shoulder significant tax burdens—as well as industry bodies warning of knock‑on effects for tenants.
Preparing for the autumn budget
The Treasury has not confirmed whether the policy will appear in Reeves’ budget, but officials are understood to be running costings and impact assessments.
The Chancellor is expected to unveil a package of measures aimed at stabilising public finances, investing in priority services, and maintaining credibility with markets.
For now, the prospect of National Insurance on rental income adds a new dimension to the politically charged question of who pays for Britain’s fiscal recovery—and how Reeves can reconcile Labour’s fiscal rules with voter expectations.
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