HOW NATIONAL INSURANCE TAX CLASS 2 AFFECTS LANDLORDS
Alexandra Ventress
January 9th, 2024
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What are the classes of National Insurance?
What is Class 2 National Insurance?
Do landlords have to pay National Insurance?
Can landlords not pay National Insurance?
Do you pay NI on landlord income?
What class of National Insurance will affect property investors>
How much tax and National Insurance do you pay as a landlord?
Start your property portfolio today!
National insurance tax can be a tricky tax to get your head around, especially as a landlord and a property investor. With different classes, rules, and regulations to get to grips with, it can be easy to feel overwhelmed.
You may have heard of class 2 national insurance tax, or Class 2 NICs as it is also known. This is a tax that landlords can face if they make more than a set total in profit each year.
In this blog post, we will be taking a closer look at national insurance tax in general, as well as the specifications needed to pay class 2 national insurance and how national insurance class 2 affects landlords.
WHAT ARE THE CLASSES OF NATIONAL INSURANCE?
When it comes to National Insurance, there are 4 main types that can be paid. These are referred to as Class 1, Class 2, Class 3, and Class 4. You pay the following classes if:
- Class 1 is paid by both employees and employers.
- Class 2 is a flat rate that is paid by the self-employed.
- Class 3 is a voluntary contribution that is paid by people looking to complete their National Insurance record for benefit purposes, but are not liable to pay National Insurance.
- Class 4 is paid upon profits above a set level by the self-employed.
WHAT IS CLASS 2 NATIONAL INSURANCE?
For most self-employed people, there are currently two types of National Insurance Contributions (also referred to as NICs) that can be payable. These are called Class 2 NICs and Class 4 NICs.
If you are a self-employed taxpayer and you earn under the Small Profits Threshold (SPT), which is currently set to £6,725, then it will not be necessary to pay NICs Class 2. As it currently stands, Class 2 NICs are currently paid at a flat rate of £3.45 per week for the 2023-24 tax year. These Class 2 NICs payments count toward the basic State Pension, the employment and support allowance, maternity allowance, and bereavement benefits.
Are there exemptions from class 2 national insurance?
There are exemptions from Class 2 NICs. If you are in the following job role, then you will not be required to pay:
- If you run a business which involves either property or land,
- You are either an exam moderator, invigilator, examiner, or someone who sets exam questions,
- An investor for yourself or others who is not a business and do not receive a fee or commission
- A religious minister who doesn’t receive a salary or stipend
If you fall under any of the following, then you may wish to get a State Pension forecast. You can use this to determine whether you should make a voluntary class 2 NICs in order to make up missing years.
DO LANDLORDS HAVE TO PAY NATIONAL INSURANCE?
As a landlord, you will be required to pay national insurance on rental income if you earn £6,515 a year or higher and you are classed by the government as running a business. According to gov.uk, renting a property counts as a business when:
- You rent out more than one property
- Your main occupation is being a landlord
- You purchase new properties to rent out
If this applies to you, then you will be required to as a landlord national insurance in Class 2.
CAN LANDLORDS NOT PAY NATIONAL INSURANCE?
If you are an unincorporated landlord, then you will not be required to pay National Insurance on the rental income you receive. If you are running your property like a business, for example running a bed and breakfast or a hotel-type business, then you will be required to pay.
Should I register for self assessment?
Whether or not you should register for self assessment tax form will depend on your earnings. You will not be required to pay tax on your property allowance. This is the first £1,000 of your earnings from rental income.
If you are a landlord who earns between £1,000 and £2,500 a year from your rental property income, you will need to get in touch with HMRC to find out how to properly report it.
Should you be a landlord who earns between £2,500-£9,999 a year from their rental income after allowable expenses or £10,000 before they have been deducted, then you will be required to report it through Self Assessment. Self Assessment is the method HMRC uses to collect Income Tax from landlords, sole traders, and other professions.
As a landlord, if you have not already filed for a Self Assessment tax return, then you will have until the 5th October the following tax year to register for your earned rental income.
Are there any expenses that I can claim?
As a landlord, HMRC allows you to deduct allowable expenses from your rental income if they are a result of renting out your property. Personal costs are not allowed to be claimed. If there is mixed usage (such as a mobile phone) you will be able to claim part expenses, however, the amount claimed must be worked out in proportion to property-related costs.
Some allowable expenses you may be allowed to deduct include:
- Landlord insurance
- Fees for accounting and letting agents
- Costs of repair and maintenance (but not improvements)
- General operational costs
DO YOU PAY NI ON LANDLORD INCOME?
Yes, they do. As we have previously mentioned, you will be required to pay Class 2 national insurance if you are deemed to be running a business.
If you are unsure whether or not your rental property is classed as running a business, you can check out the gov.uk website to see the full terms and conditions.
WHAT CLASS OF NATIONAL INSURANCE WILL AFFECT PROPERTY INVESTORS?
How much national insurance a property investor will pay depends upon the investment itself. If the property is regarded purely as an investment as it is not trading, then you would not typically be liable to pay class 4 national insurance.
However, class 4 NICs will be payable if you are operating a business and trading.
If you are in any doubt, it is always best to consult the gov website in order to fully understand your situation.
HOW MUCH TAX AND NATIONAL INSURANCE DO YOU PAY AS A LANDLORD?
The exact amount of tax and national insurance you will pay as a landlord will depend upon a variety of factors, such as:
- How much rental income you receive from your tenants
- How much taxable income you receive from all other taxable sources (wages from employment/self-employment, pension payments, etc)
- How much you claim in tax expenses and allowance
After your total taxable income has been calculated, you will be taxed in accordance with the Income Tax Band that you fall into. Below is the Income Tax Band for the 2023/24 tax year:
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,14 | 45% |
Navigation
What are the classes of National Insurance?
What is Class 2 National Insurance?
Do landlords have to pay National Insurance?
Can landlords not pay National Insurance?
Do you pay NI on landlord income?
What class of National Insurance will affect property investors>
How much tax and National Insurance do you pay as a landlord?
Start your property portfolio today!
National insurance tax can be a tricky tax to get your head around, especially as a landlord and a property investor. With different classes, rules, and regulations to get to grips with, it can be easy to feel overwhelmed.
You may have heard of class 2 national insurance tax, or Class 2 NICs as it is also known. This is a tax that landlords can face if they make more than a set total in profit each year.
In this blog post, we will be taking a closer look at national insurance tax in general, as well as the specifications needed to pay class 2 national insurance and how national insurance class 2 affects landlords.
WHAT ARE THE CLASSES OF NATIONAL INSURANCE?
When it comes to National Insurance, there are 4 main types that can be paid. These are referred to as Class 1, Class 2, Class 3, and Class 4. You pay the following classes if:
- Class 1 is paid by both employees and employers.
- Class 2 is a flat rate that is paid by the self-employed.
- Class 3 is a voluntary contribution that is paid by people looking to complete their National Insurance record for benefit purposes, but are not liable to pay National Insurance.
- Class 4 is paid upon profits above a set level by the self-employed.
WHAT IS CLASS 2 NATIONAL INSURANCE?
For most self-employed people, there are currently two types of National Insurance Contributions (also referred to as NICs) that can be payable. These are called Class 2 NICs and Class 4 NICs.
If you are a self-employed taxpayer and you earn under the Small Profits Threshold (SPT), which is currently set to £6,725, then it will not be necessary to pay NICs Class 2. As it currently stands, Class 2 NICs are currently paid at a flat rate of £3.45 per week for the 2023-24 tax year. These Class 2 NICs payments count toward the basic State Pension, the employment and support allowance, maternity allowance, and bereavement benefits.
Are there exemptions from class 2 national insurance?
There are exemptions from Class 2 NICs. If you are in the following job role, then you will not be required to pay:
- If you run a business which involves either property or land,
- You are either an exam moderator, invigilator, examiner, or someone who sets exam questions,
- An investor for yourself or others who is not a business and do not receive a fee or commission
- A religious minister who doesn’t receive a salary or stipend
If you fall under any of the following, then you may wish to get a State Pension forecast. You can use this to determine whether you should make a voluntary class 2 NICs in order to make up missing years.
DO LANDLORDS HAVE TO PAY NATIONAL INSURANCE?
As a landlord, you will be required to pay national insurance on rental income if you earn £6,515 a year or higher and you are classed by the government as running a business. According to gov.uk, renting a property counts as a business when:
- You rent out more than one property
- Your main occupation is being a landlord
- You purchase new properties to rent out
If this applies to you, then you will be required to as a landlord national insurance in Class 2.
CAN LANDLORDS NOT PAY NATIONAL INSURANCE?
If you are an unincorporated landlord, then you will not be required to pay National Insurance on the rental income you receive. If you are running your property like a business, for example running a bed and breakfast or a hotel-type business, then you will be required to pay.
Should I register for self assessment?
Whether or not you should register for self assessment tax form will depend on your earnings. You will not be required to pay tax on your property allowance. This is the first £1,000 of your earnings from rental income.
If you are a landlord who earns between £1,000 and £2,500 a year from your rental property income, you will need to get in touch with HMRC to find out how to properly report it.
Should you be a landlord who earns between £2,500-£9,999 a year from their rental income after allowable expenses or £10,000 before they have been deducted, then you will be required to report it through Self Assessment. Self Assessment is the method HMRC uses to collect Income Tax from landlords, sole traders, and other professions.
As a landlord, if you have not already filed for a Self Assessment tax return, then you will have until the 5th October the following tax year to register for your earned rental income.
Are there any expenses that I can claim?
As a landlord, HMRC allows you to deduct allowable expenses from your rental income if they are a result of renting out your property. Personal costs are not allowed to be claimed. If there is mixed usage (such as a mobile phone) you will be able to claim part expenses, however, the amount claimed must be worked out in proportion to property-related costs.
Some allowable expenses you may be allowed to deduct include:
- Landlord insurance
- Fees for accounting and letting agents
- Costs of repair and maintenance (but not improvements)
- General operational costs
DO YOU PAY NI ON LANDLORD INCOME?
Yes, they do. As we have previously mentioned, you will be required to pay Class 2 national insurance if you are deemed to be running a business.
If you are unsure whether or not your rental property is classed as running a business, you can check out the gov.uk website to see the full terms and conditions.
WHAT CLASS OF NATIONAL INSURANCE WILL AFFECT PROPERTY INVESTORS?
How much national insurance a property investor will pay depends upon the investment itself. If the property is regarded purely as an investment as it is not trading, then you would not typically be liable to pay class 4 national insurance.
However, class 4 NICs will be payable if you are operating a business and trading.
If you are in any doubt, it is always best to consult the gov website in order to fully understand your situation.
HOW MUCH TAX AND NATIONAL INSURANCE DO YOU PAY AS A LANDLORD?
The exact amount of tax and national insurance you will pay as a landlord will depend upon a variety of factors, such as:
- How much rental income you receive from your tenants
- How much taxable income you receive from all other taxable sources (wages from employment/self-employment, pension payments, etc)
- How much you claim in tax expenses and allowance
After your total taxable income has been calculated, you will be taxed in accordance with the Income Tax Band that you fall into. Below is the Income Tax Band for the 2023/24 tax year:
| Band | Taxable income | Tax rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,14 | 45% |
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