Does a landlord need to pay Class 2 NICs?
Sep 10, 2020
If you are a landlord and you pay Income Tax on the profits you receive from renting out property, how do you know if you are classed as a ‘self-employed earner’ for NIC purposes? Self-employed earners have to pay Class 2 National Insurance Contributions (NICs), at the current rate of £3.05 per week.
The answer is that you will only be a self-employed earner for NICs purposes if the level of activities you carry out as a result of your property rental amounts to running a business.
HMRC has recently issued clarification which states that in order for a property owner to be classed as a self-employed earner, your property management activities must extend beyond those generally associated with being a landlord. Being a landlord usually involves, but isn’t limited to, the following types of activities:
- undertaking or arranging for external and internal repairs
- preparing the property between lets
- advertising for tenants and arranging tenancy agreements
- generally maintaining common areas in multi-occupancy properties; or
- collecting rents.
The HMRC guidance suggests that property rental becomes more of a business for NICs purposes if you own multiple properties, if you’re actively looking to acquire further properties to let, or if property letting is your main occupation.
You will also be classed as a self-employed earner if as a landlord, any of your activities amount to a trade for Income Tax purposes. That is, for example, when you receive income from other services provided to tenants such as an ironing service.
If you have any queries about property rental income and how this affects your tax or National Insurance Contributions, then please contact the PT team and we’ll be happy to help.