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Retired, Rich and Renting Out — Property Landlords Escape Tax Rises to Fund Social Care

The Government’s plan to raise taxes to pay for social care excludes income earned from renting, meaning wealthy landlords are protected from the increase

Photo: Dylan Garcia Photography/Alamy

Retired, Rich And Renting Out PropertyLandlords Escape Tax Rises to Fund Social Care

The Government’s plan to raise taxes to pay for social care excludes income earned from renting, meaning wealthy landlords are protected from the increase

The Conservative Party has broken its 2019 manifesto promise not to increase taxes, including National Insurance contributions, in order to ‘fix’ social care in the UK. 

The Prime Minister announced the plan to increase NI contributions by 1.25% for all workers, including workers of pensionable age who were previously excluded.

The rise will pay for social care reforms that include a cap of £86,000 on lifetime contributions and a commitment that no one with assets below £20,000 will pay a penny for social care. The cap will be introduced in October 2021, while the change to means testing will begin in 2023. 

However, initially the rise in NI will focus on funding the NHS, leading to some commentators and MPs expressing doubts that the money raised will ever reach the care sector. 

The plan means that everyone from care workers on the minimum wage to MPs will pay more NI to fund the ongoing crisis in social care. 

But there is at least one source of income that will not be affected by the rise in NI: money earned through rent. While the average tenant spending 31% of their earnings on rent will see their taxes increase to fund social care, landlords won’t pay a penny more tax on their rental income. 

This is in spite of the fact that 15% of landlords report a gross rental income of £50,000 or more, while just over a quarter (26%) enjoy a gross rental income of between £20,000 and £49,999. 

The 2018 Landlord Survey calculated that, using annual reported gross income and gross rental income, landlords receive 42% of their gross income from rental properties. 

Who Is Missing Out on the Tax Rise?

In 2018, there were 1.5 million landlords in England. According to the Landlord Survey published that year, just under half (45%) own one rental property while 17% own five properties or more. The number of landlords earning income from multiple properties has increased since 2010 – back then 78% of landlords only rented out one property. 

Landlords are older and whiter than the average population, with one-third of landlords already retired. More than half (55%) were aged 59 or over. It is not surprising then that most landlords see their role as a “long-term investment to contribute to their pension”. 

Renters, in contrast, are more likely to be younger and have less asset wealth, raising questions about the generational inequality of the NI rise. While these younger tenants will see their income hit by the tax rise, the income of their older or retired landlords will be protected. 

According to a 2018 report by the Office for National Statistics, 22% of pensioner households are millionaires when housing wealth and other assets are taken into account. This compares to 17% for the 45 to 54 age bracket, 6% for 35 to 44 year olds, and essentially 0% for those aged 25 to 34.

It is also worth noting that protecting rental income benefits many of those voting on the tax rise.

Ninety Conservative MPs earn at least £10,000 a year income as private landlords. In April, the Daily Mail reported that even Boris Johnson was hoping to boost his income via the rental market – advertising his Oxfordshire cottage to rent for £4,250 per month. A further 25 MPs from other parties also rent out property, meaning a total of 18% of MPs are landlords. 


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An Unfair Proposal? 

The decision to fund social care through an increase to NI contributions has been criticised as unfair by Labour MPs and social mobility think tanks. That rental income will not be impacted by the plan adds to accusations that the tax rise hits those on low incomes while protecting wealth. 

Workers on the lowest incomes of £20,000 and less will see their NI contributions rise by £130 in a year, while those earning £100,000 or more will pay an additional £1,130. But, while this is the larger number, unlike income tax the percentage of NI a worker pays does not increase by much as they earn more. Anything earned above £50,000 attracts a NI rate of just 2%.

Further, while workers don’t pay income tax unless they earn more than £12,570 per year, NI contributions kick in when someone earns £9,500 a year. 

The rise also comes in the context of the biggest overnight cut to the basic rate of social security since World War Two, with the decision to remove the £20 Universal Credit uplift in October. The weekly increase to the benefit was put in place to help low-income households at the start of the pandemic. 

Sarah Arnold, a senior economist at the New Economics Forum, calculated that 2.5 million working households will be hit by both the tax rise and the benefit cut – costing the lowest earners an average of £1,290 a year. 

For this reason, the tax rise is seen as regressive by workers’ rights campaigners and opposition parties. Labour Leader Keir Starmer has said that his MPs will not support the increase, saying the plan “hits low earners, it hits young people and it hits businesses”.

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