The UK Treasury is reportedly weighing the introduction of national insurance contributions (NICs) on rental income, a measure that could impact landlords ahead of Chancellor Rachel Reeves’ autumn budget.
The potential policy, under consideration by officials, aims to generate an estimated £2 billion for public finances, according to a report from The Independent.
The proposal would see landlords paying NICs on property earnings, aligning rental income with other forms of earnings where employee NICs are set at 8%, dropping to 2% above the £50,270 threshold.
The measure is supported by some Labour MPs and government aides, who view landlords as a source of “unearned revenue.” The plan is being positioned as an expansion of the income subject to NICs, rather than an increase in the rate itself.
Allies of Ms Reeves have argued that this approach allows the government to avoid breaching Labour’s pledge not to raise VAT, income tax, or NICs rates. Instead, the policy would broaden the scope of income to which NICs apply, potentially raising significant revenue while staying within the party’s fiscal commitments.
Officials are reportedly seeking ways to increase revenue without crossing these three “red lines.” The options are limited, as Ms Reeves faces a challenging fiscal environment. The National Institute of Economic and Social Research (NIESR) recently warned that the Chancellor could face a £41 billion shortfall in meeting her target of balancing day-to-day spending with tax receipts by 2029-30.
The Treasury’s search for new sources of revenue comes as insurance-related tax receipts have reached historic highs. Insurance Premium Tax (IPT) receipts climbed to £4.5 billion in the first half of the 2024/25 financial year, marking a 13% increase from the previous year. This surge has been attributed to rising insurance premiums and a growing demand for private healthcare, as more employers and individuals seek alternatives to NHS services.
Employers, in particular, are increasingly turning to Private Medical Insurance (PMI) and health cash plans to support staff, with some experiencing healthcare cost increases of 15% to 25%. NHS waiting lists have now exceeded 7.6 million, further driving demand for private solutions.
There are also concerns among industry observers that further increases to IPT or similar levies could prompt employers and individuals to reconsider their use of PMI and health cash plans. Such a shift could add strain to the NHS by increasing the backlog of cases and complicating health outcomes, as preventative care and early diagnosis – key benefits of private cover – might become less accessible if costs rise further.
A Treasury spokesperson stated that the preferred strategy for strengthening public finances is economic growth.
“Changes to tax and spend policy are not the only ways of doing this, as seen with our planning reforms, which are expected to grow the economy by £6.8 billion and cut borrowing by £3.4 billion,” the spokesperson said.
They 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.”
The Treasury has not confirmed whether the NICs on rental income proposal will be included in the upcoming budget. The measure remains under review as officials assess options for addressing the fiscal gap.
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