If you log onto the H M Revenue and Customs website, there is a new yellow box saying “Are you self-employed, an e-trader or a landlord? If you click on this box, then click on the pink “Landlord” box, then select “Find out what taxes you have to pay as a landlord” at the bottom of the page, you come to a page which says:
“Your liability for NICs as a landlord depends upon whether you would be regarded as 'gainfully employed'. If you take an active part in running the business such as cleaning and decorating the properties in return for receiving rental income then you are probably a self-employed earner and liable for Class 2 NICs. If, however, you do no more than let out the properties and receive the rental income from them then you would be regarded as non-employed for NICs purposes and there would be no Class 2 liability.”
My understanding was always that letting property was not self-employment, unless it was holiday letting. I have several clients who let properties, and some of them do their own decorating and repairs. The above guidance seems to imply that they may be trading. Is this something new? Or have I been treating them incorrectly by just filling in the Land and Property pages on the tax return?
Judy
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Replies (4)
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Rental Income and Self-Employment
Judy, have a look at help sheet IR223. The answer is there.
No, it's always been the case
As the notes say, if they are doing more than just letting property, that can be considered self employment. It covers situations like B&Bs where the landlord is providing additional services. I don't think that doing your own repairs and decorating would come within that definition though.
What about NIC ?
I agree entirely with Paula, but what does someone who makes a business out of letting properties (furnished or unfurnished, but with no additional services) and who has no other employment or self-employment, do about paying NICs? He is not liable to pay Class 1 or Class 2 & 4, so does he have to pay voluntary Class 3 contributions?
Class 3
is the only option available to someone who is neither employed nor self employed, or is not liable to UK contributions on earnings (working overseas for example). However, it's worth getting a Pension forecast to ascertain whether Class 3 is needed and how many years are required before advising clients to pay Class 3.