Whether rental income attracts Class 2 NI contributions has always been a complicated matter. Thankfully a change made in 2015 has brought some clarity to the issue. What do you need to advise your clients to do in respect of NI on their rental income?


Under the old rules Class 2 NI contributions were due in respect of any “business” activity. The simple letting of a single property is investment income and so would never amount to a business. Landlords who had larger portfolios would often have problems though, with HMRC contending that the size of the portfolios must mean that keeping on top of it all was more akin to a business.


So with “investment” landlords at one end of the spectrum and “business” landlords at the other, the problem was always determining where exactly the line marking the change from one to the other was to be drawn.

In more recent years HMRC began issuing demands for up to six years’ Class 2 NI countributions, sometimes to landlords with only a handful of properties. This coincided with the change in HMRC’s doctrine from collecting the right amount of tax to collecting as much as possible. Naturally some didn’t argue and just paid up – possibly unneccesarily.


The issue of whether a rental portfolio was a business was considered in Rashid v Garcia [2002] UKSC SpC 348 (see Follow up ).

Case law. Mr Rashid owned four let properties, which he and other family members spent around 20 hours per week managing. He was arguing the case that this did constitute a business, as he wanted to use Class 2 contributions as a relatively cheap way to accrue social security benefits – such as state pension entitlement. The Special Commissioners (the forerunners of the Upper Tribunal) rejected his claim and asserted that no liability was due from him. The activities were not substantial enough to constitute a business.

A demand received by a client who simply happened to own more than one let property could be rebutted with relative ease by citing the Rashid case.


Change came in the form of the National Insurance Contributions Act (NICA) 2015 . Following this, Class 2 NI is only due on income which is subject to Class 4 NI.

Pro advice. Since rental income is never chargeable to Class 4 NI, no liability will now be due – even if the property letting activity is a business.

You can therefore inform any client who has concerns that they do not need to pay Class 2 NI in respect of any rental income, regardless of how involved they are.


Those landlords who are operating as a business have the option to pay Class 2 NI voluntarily. The term “business” is still not defined, but for those whose involvement is substantial, this may be a good option if they have no other means of accruing benefits through NI contributions.

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