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  • Tax

    National Insurance contribution - landlord

    This question might have  been asked before but want to clarify again.

    My wife's sole income is from rent.

    Does she need to pay any NI contributions? and is there any minimum or maximum threshold of income ?

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    There is no NI on BTL in your own name

    Its not a Business ???

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    Learn Change and Adapt ?????

    All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.


    Incorrect and uninformed answer.

    This from Gov.uk website:

    You have to pay Class 2 National Insurance if your profits are over £5,965 a year and what you do counts as running a business, for example if all the following apply:

    • being a landlord is your main job
    • you rent out more than one property
    • you’re buying new properties to rent out
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    I believe that website is out of date. It describes the situation prior to NICA 2015.






    Note that HMRC uses multiple definitions of business depending on the particular law involved. So being a landlord both is and is not a business. For that part of the law there isn't a definition so HMRC tried to clarify what counted as a business, but NICA seems to have made that irrelevant.
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    From a HMRC manual

    A self-employed earner is defined at section 2(1)(b) of the Social Security Contributions and Benefits Act 1992 as: ““self-employed earner” means a person who is gainfully employed in Great Britain otherwise than in employed earners employment (whether or not he is also employed in such employment).”

    A person who is liable to Income Tax on the profits of a trade, profession, or vocation will generally also be a self-employed earner for National Insurance Contributions (NICs) purposes. As a self-employed earner, they will be liable to pay Class 2 NICs.

    However, a person who is liable to Income Tax on the profits arising from the receipt of property rental income will only be a self-employed earner for NICs purposes if the level of activities carried out amounts to running a business.

    The nature of property letting requires some activity to maintain the investment, but that is not enough to make it a business. For example, being a landlord normally involves:

    • 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.

    In order for a property owner to be a self-employed earner, their property management activities must extend beyond those generally associated with being a landlord (which include, but are not limited to, the above).

    For example, ownership of multiple properties, actively looking to acquire further properties to let, and the letting of property being the property owner’s main occupation could be pointers towards there being a business for NICs purposes.

    A landlord will also be a self-employed earner if any of their activities amount to a trade for Income Tax purposes. This could include, for example, receiving income from other services such as providing a bank of washing machines in a multi-occupancy block that is rented to tenants, or providing an ironing service to tenants. Running a guest house or hotel will also usually amount to a trade for Income Tax purposes, so an individual proprietor will be a self-employed earner for NICs purposes.

    If a property owner has an agent who manages their property for them, things that the agent does should be attributed to the owner. ‘Agent’ includes a friend or family member, as well as a professional managing agent. However, a property owner will only be a self-employed earner on this basis if the things that the agent does for them (ignoring any other clients they might have) are enough to count as a business or trade.

    Examples

    Samantha lets out a property that she inherited following the death of her great aunt. This will not constitute a business.

    Bob owns ten properties which are let out to students. He works full time as a landlord and is continually seeking to increase the number of properties he owns for letting. Bob is running a business for NICs purposes.

    Claire owns multiple properties that are let. She spends around half her working time carrying out duties as a landlord and is not looking to increase the number of properties she owns. If the only duties that Claire undertakes are those normally associated with being a landlord, then this would not constitute a business.

    Hasan purchases properties using “buy to let” mortgages. He places all letting duties in the hands of a property letting agent who acts as landlord on his behalf. If the only duties that the property letting agent undertakes for Hasan are those normally associated with being a landlord, then this would not constitute a business.


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    Hi Shassan,

    Notwithstanding the finer points of argument about whether someone who's only income is from rent should pay NI or not, I know that many landlords whose sole income is rent do not pay NI, as often advised by accountants.  If you have an accountant, you could ask them.

    The key question for anyone who does not pay NI, from your own point of view, is whether it would be beneficial to yourself (or in this case your wife) to make voluntary NI contributions.  Whether you have made sufficient NI contributions, or are eligible for credits (for example as a carer), will affect how much state pension you can get when you retire.

    A good place to start looking up how much state pension you are on target for is https://www.gov.uk/check-state-pension and you can check what credits may be available to you at https://www.gov.uk/national-insurance-credits.

    If you do not have enough NI credits or payments for a full pension and the situation is unlikely to change (ie: you won't get a job in future) then it could be worthwhile to make voluntary contributions.

    I recently helped someone to look into this and they found that voluntary contributions would increase their pension by an amount such that they would recoup the cost of the contributions within three years - so by living any longer than that after pensionable age, they'd be quids in!

    Angela

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    Author of The Complete Guide to Property Strategies

    "It is the small decisions you and I make every day that shape our destiny" Anthony Robbins


    The question about voluntary contributions is whether you can make class 2 or only class 3 ones, since class 3 cost about 5 times more. Most people would get class 2 ones back in less than a year,  But class 2 is to be abolished in April 2019.

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    Yes Peter, in this case she had to pay Class 3.

    People should ask their accountant and/or the NI Voluntary Contributions team for help with which is the correct class for them.

    Thanks,
    Angela

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    Author of The Complete Guide to Property Strategies

    "It is the small decisions you and I make every day that shape our destiny" Anthony Robbins


    My accountant was slow getting back to me but he has been ill. I have now persuaded him that I am close enough to qualifying for class 2 to make it worth applying.

    I tried ringing a NI number but the person I spoke to was not very helpful.

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    That's interesting Peter.  When my friend rang the NI helpline, they arranged a call-back for a  couple of weeks later after having looked into it more.  They were very helpful and had looked up exactly which years she could apply back-payments to most cost-effectively, as the cost varied from year to year.

    Angela

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    Author of The Complete Guide to Property Strategies

    "It is the small decisions you and I make every day that shape our destiny" Anthony Robbins