What is Class 2 National Insurance and do Landlords need to pay it?

You make Class 2 National Insurance contributions if you’re self-employed to qualify for benefits like the State Pension.

Most people pay the contributions as part of their Self Assessment tax bill.

You pay Class 2 if your profits are Β£6,515 or more a year

ClassRate for tax year 2021 to 2022
Class 2Β£3.05 a week

So for the whole year that’s Β£158.60

Are you running a business?

You have to pay Class 2 National Insurance if your profits are Β£6,515 a year or more and what you do counts as running a business, for example if all the following apply:

  • being a landlord is your main job
  • you rent out more than one property
  • you’re buying new properties to rent out

If your profits are under Β£6,515, you can make voluntary Class 2 National Insurance payments, for example to make sure you get the full State Pension.

You do not pay National Insurance if you’re not running a business – even if you do work like arranging repairs, advertising for tenants and arranging tenancy agreements.

As soon as you reach state pension age, you stop paying Class 2 NIC if you carry on working. You only have to pay them on any earnings that were due to be paid to you before you reached state pension age.

In addition Companies who own properties don’t pay national insurance, national insurance is only paid by employees and the self employed.

Class 2 NI would also not apply if you use a letting agent to collect the rents – average fees would be 15%, even if it is a relative or your own company as then your role will only a passive investment role.

The key case on this topic is Rashid v Garcia (Status Inspector) (2002) Sp C 348

Decision released 11 December 2002.

National Insurance – Class 2 contributions – Self-employed earner – Landlord – Taxpayer had income from letting property – Claim for incapacity benefit – class 2 National Insurance contributions paid to qualify for benefit – Revenue took view that property rental activities did not entitle taxpayer to pay class 2 contributions as he was not carrying on business – Benefit refused – Whether taxpayer was self-employed earner carrying on business – Social Security Contributions and Benefits Act 1992, s. 2, 122.

The taxpayer had four properties income Β£10,942.

It was estimated that the taxpayer spent two to four hours per week on managing the properties and members of his family acting on his behalf spent 16 to 24 hours per week. The Special Commissioner considered this was insufficient activity to constitute a business so no Class 2 NI was due.

Back in 2015 HMRC did try to get Landlords to pay Class 2 as explained in our blog Should Landlords pay Class 2 NI? – Steve J Bicknell Tel 01202 025252

HMRC Examples NIM23800

Samantha lets out a property that she inherited following the death of her great aunt. This will not constitute a business.

Bob owns ten properties which are let out to students. He works full time as a landlord and is continually seeking to increase the number of properties he owns for letting. Bob is running a business for NICs purposes.

Claire owns multiple properties that are let. She spends around half her working time carrying out duties as a landlord and is not looking to increase the number of properties she owns. If the only duties that Claire undertakes are those normally associated with being a landlord, then this would not constitute a business.

Hasan purchases properties using β€œbuy to let” mortgages. He places all letting duties in the hands of a property letting agent who acts as landlord on his behalf. If the only duties that the property letting agent undertakes for Hasan are those normally associated with being a landlord, then this would not constitute a business.

steve@bicknells.net

Leave a Reply