NI Contributions for landlords
In this post we discuss the circumstances when NI contributions for landlords are likely to be payable. This should be considered in conjunction with Making Tax Digital for landlords which we have covered in a previous article.
When NI contributions for landlords are payable
When considering whether or not NI contributions for landlords are payable, HMRC apply a test to determine whether they consider a liability is due.
Class 2 NI contributions are payable where someone who is an earner is in 'employment' as a ‘self-employed earner’. They must also have ‘relevant profits’ at least equal to the small profits threshold (this is £6,725 for 2022-23).
Put simply (and to avoid you having to navigate the legislation!) Class 2 NI contributions are generally speaking payable if the following apply:
We would stress that whilst HMRC's approach provides some useful insight, this is not supported by either the taxes legislation or case law. Their guidance essentially places landlords in three tiers relating to those undertaking property or investment-related activities. These are as follows:
HMRC consider that the usual activities of a landlord such as carrying out or arranging repairs, advertising, collecting rents etc are not sufficient for to be considered potentially liable for NI contributions.
The key point to note is that it is usually only those individuals who are considered by HMRC to fall under tier three, that are liable to pay Class 2 NI contributions. However, where property management activities extend beyond those generally associated with being a landlord, it may be possible to fall within the scope of Class 2 NI contributions
Why pay Class 2 NI contributions?
Many landlords might consider their property portfolio to be their pension. However where you have a property business and are not gaining NIC credits from PAYE employment or self-employment, you may want to consider whether the property business amounts to gainful employment (see above).
This is because it would allow voluntary Class 2 NICs to be paid, thus building up entitlement to the state pension and other state benefits, at a relatively low cost.
The government has recently extended the voluntary National Insurance contribution deadline to 31 July 2023. This provides you with more time to fill gaps in your records to maximise your future State Pension benefits.
Where there are gaps in your NI record, voluntary NICs can be paid in order to obtain a higher State Pension entitlement or entitlement to other state benefits. Typically, this might affect you if you are aged between 45 and 60 years and therefore close to retirement age.
Voluntary contributions can usually only be paid for the past six years: this means that gaps for the tax year 2016-17 must be made up by 5 April 2023.
The transitional arrangements ending on 31 July 3023 enable you to make voluntary NICs contributions can be made as far back as 2006, rather than the usual six years. You therefore have until 31 July 2023 to pay voluntary contributions for gaps in NIC records between April 2006 and April 2016. After this date the opportunity will be lost.
For more useful information, check out our Ebooks here.
And if you'd like to know how we can help you with all of this, or with anything else, feel free to give us a call on 01202 048696 or email us at [email protected].
Alternatively, please feel free to complete our Business Questionnaire here.