Gosh, Labour really does hate private landlords. Rachel Reeves’ latest property tax proposal to be dangled before the public is to charge National Insurance contributions (NICs) on income from rental properties. This would set it aside from other forms of investment income, which are liable for income tax but not NICs. It would also represent a growing war against small-time private landlords as opposed to corporate ones. Companies letting properties would not be affected by the change and neither would private landlords with substantial salaries be hit badly – there is a ceiling on the main rate of NICs, with income over £50,000 a year taxed at only 2 per cent above that level.
Rachel Reeves has no ideas other than dreaming up ways of extracting more of our money
The proposal thus targets private landlords with non-property incomes of less than £50,000 a year. Has Reeves stopped to ask herself who these people are? Many of them are pensioners who worked in the private sector and cannot look forward to the sort of gold-plated, index-linked pensions underwritten by the taxpayer which will fund Reeves’ retirement. They will have bought property in order to bolster what they could see was going to be an inadequate income from their private pensions.
Yet Reeves now proposes to whack these people over the head in order to fill her fiscal black hole – a black hole which has developed, let’s not forget, thanks to generous wage rises for public sector workers. Those wage rises will, in due course, feed through into higher pension payouts given that most public sector pensions are linked to either final or lifetime earnings.
In other words, Reeves is contemplating yet another transfer of wealth from private pensioners to public ones, from people who have done poorly out of the pension system to people who have done extremely well. In the name of fairness, she should apply NICs to income from public sector pensions before threatening small-time landlords.
But will Reeves actually get the extra revenue she is hoping for – which the Treasury appears to have estimated at £2 billion? What the proposal would do is to give small-time landlords a strong incentive to set up companies and become corporate landlords themselves – an act which could well reduce the tax take from landlords, not increase it. On the other hand, it could well prompt some landlords to sell, perhaps reducing house prices in some areas with large numbers of buy-to-lets, but at the cost of reducing rental supply and thus raising rents, at least in the short term.
I am all for equalising taxes between earned income and investment income, by the way – if, that is, it is achieved by cutting, and hopefully eventually eliminating, NICs altogether. Reeves, on the other hand, just wants to whack up taxes. Now that her token benefit cuts have been snuffed out by backbench Labour MPs she has become a one-club Chancellor, with no ideas other than dreaming up ways of extracting more of our money.
While she treats small-time landlords as big-time capitalists, the real fatcats of the property world seem to have been left alone. The Conservatives didn’t exactly distinguish themselves in their efforts to protect leaseholders from rapacious freeholders, watering down proposals to limit excessive service charges and ground rents. But Labour, having at first backed the idea, seems to have kicked the whole thing into touch. It is far easier, I guess, to pick on the small guy rather than the offshore freehold company with frightening lawyers.
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