Income from residential property letting would typically be taxed as investment income. The income and expenditure would be reported on the UK Property pages of the Tax Return.

 What difference does it make? Investment income is not subject to National Insurance (Class 2 & 4) whereas trading income is. For those with other sources of income this will be an excellent outcome as it reduces the tax due. For example say Frank has employed income of £18,000 and rental income after deducting expenses of £16,000 per year. If he included this on the Self-Employed pages of his Tax Return it would be taxed as trading income. The combined tax and National Insurance payable would be approx. £3,673. Whereas if the amounts were reported correctly on the UK Property pages the tax would be £3,200. A saving of £473 for getting the classification right and reporting on the correct pages.

 This is a great outcome for Frank. But what if Frank didn’t have any employed income and as a result no credit towards his qualifying years of National Insurance contributions, supporting future state pension entitlement amongst other things? If he wanted to avoid paying class 3 contributions could he report the property income as trading income in order to pay a little class 2 & 4 National Insurance? In this example Frank would not be entitled to pay class 2 National Insurance voluntarily. If an enquiry were opened into his Tax Return a correcting adjustment could be made and the credit to NI lost.

 In order to qualify to pay class 2 National Insurance voluntarily activities involved would need to go beyond what is usually required of being a landlord. A strong support is actively looking for new properties to add to the rental portfolio to expand the business.

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