NIC on rent?
If you are self-employed, the taxman expects you to pay class 2 National Insurance Contributions (NIC) at the flat rate of £2.75 per week. Each full year of paying NIC gives you a qualifying year for the state pension. You currently need 30 qualifying years to get the full state pension.
In the past the taxman has argued that property letting is not “self-employment”: it counts as an investment activity rather than a business. So he would not allow people who manage their buy-to-let properties on a full-time basis (or thereabouts) to pay class 2 NIC, and hence qualify for the state pension.
However, lately the taxman has been writing to landlords who have a number of let properties, asking them to pay class 2 NIC for the past six years, and to set up a direct debit for future payments.
This is confusing, as HMRC has not announced a change in policy regarding income from let properties. Such rental income must be reported on the property income pages of the self-assessment tax return, effectively as investment income. In contrast income from a business of running a hotel or guest house should be reported as self-employment, and thus is automatically liable to classes 2 and 4 NIC.
If you receive a demand from HMRC for class 2 NIC and/or a questionnaire about your letting activities, talk to us about whether you should be paying the NIC or not.
If you have no other earnings, paying class 2 NIC may give you access to the state pension. On the other hand if you have already paid in for more than 30 years, or have significant employment income, you don’t need to pay more class 2 NIC to qualify for the state pension.