Class 2 NIC On Property Rentals
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Published originally 2 September
“there appears to be an ongoing campaign by HMRC to impose Class 2
Insurance on let property”.
everyone collapses in a state of wanting to pull together an attack on
there are advantages. Firstly, if the individual has no other income
results in NIC payments, they will join the “national insurance club”
could be beneficial. At first glance this would also make the income
and help for Capital Gains Tax (CGT) and Inheritance Tax (IHT).
need to ensure that HMRC are “on the same page” in this regard.
asked by HMRC are as follows:
many properties do you have in your portfolio, and for what purpose are
your properties are within the UK and let as furnished holiday
the public, how many days a year are they let for?
much of your time (hours per month) is actively spent on looking after
you advertise your properties? If yes, please give details of how you
and as what?
happens to the service you provide to your tenant(s), if you are
for any reason?
collects the rent(s)?
looks after the letting process, for example, draws up tenancy
looks after the physical aspects (decorating and repairs) of the
you have any other source(s) of income, for example employment or
self-employment? If yes, please give details below (if you are
please tell us what you do and if you are currently registered as
Let’s go back
to why the taxpayer would want to pay Class 2 NIC as shown by Rashid (Rashid
v Garcia  SSCD 36). There,
the point of contention was whether the taxpayer was a self-employed
within the meaning of SSCBA 1992, s 2(1)(b) for Class 2 National
purposes. Unusually, the taxpayer was arguing that there was a
HMRC were arguing that there was not.
the taxpayer had income from
four letting properties on which he carried out quite a bit of work.
included drawing up tenancy agreements, collecting rents, making
for repairs, drafting advertisements, making credit checks and cleaning
maintaining common gardens. He stated that he spent between two and
each week on this work, with family members contributing between 16 and
hours on his behalf due to his ill health. The Special Commissioners
the taxpayer was not a self-employed earner and his property rental
did not entitle him to pay Class 2 National Insurance contributions.
glance the Class 2 on rental property can be just a simple case of why
property owners are keen to pay Class 2 NIC on rental income; on the
you could be dragged into the issue of why HMRC should not have powers
monies from client bank accounts.
on the ICAEW Tax Faculty website, said:
“We have just
had the perfect example of why HMRC should not have these powers.
a letter from HMRC debt management and banking demanding unpaid tax and
interest of more than £21,000, referring to previous attempts to get
to pay (although no previous demands had been received). After
with help from the HMRC Agent helpline, we determined that the
from an assessment raised for 2008/09 which had been paid in November
AccountingWeb, “ashbury” gave details of his experiences under the
version of the same power (HMRC are keen to stress that similar powers
well in other countries):
had the experience of the French tax man dipping into my bank account
consultation or warning of any kind after he said that I’d failed to
previous demands – demands that he’d sent to an address that I’ve had
connection with for over two years. Resolved, but only after he’d
cash that he thought he was entitled to, to my personal detriment and
essential to look at the basics here:
appears an ongoing campaign by HMRC to impose Class 2 National
Contributions (NIC) on let properties.
those owning let properties and all those advising clients with let
must consider Class 2 NIC for better and for worse. There are not just
disadvantages as many promote. This is a subject around which clarity
sought. That clarity can lead to maximising the advantages and
IHT and CGT
For those who
are looking at the more long-term advantages, eg the potential Capital
Tax (CGT) and Inheritance Tax (IHT) benefits of Business Property
There are many who argue that serviced let property should achieve the
reliefs of property with services, eg Ramsay
and Rollover Relief for CGT. Likewise, let property with services
achieve BPR for IHT relief.
Need for Clarity
The lack of
clarity on the Class 2 position is replicated in the IHT position of
property. The importance of meeting the IHT BPR criteria has been
the recent case of Trustees of David
Zetland Settlement v HMRC  UKFTT 284 (TC). One of the
that has to be considered is the whole structure and operation of
provided by the taxpayer.
was: how ‘actively managed’ was the office block at the core of the
This ties into many trades operating in the UK. There is a need for
guidance from HMRC on the definition of active management when the
business activities have become a large part of the overall operation.
But were the
services enough to tip the balance from investment business to trading
First-tier Tribunal (FTT) referred to the remark of Carnwarth LJ,
quoted in Pawson, that in the case
of a business
letting a building, the provision of such services is ‘unlikely to be
because it will not be enough to prevent the business remaining
‘mainly’ one of
argued that the non-investment side was incidental to the core letting
and the services were insufficient to make the business of a mainly
Assumption – the starting
useful point was made in Zetland with
regard to eligibility for BPR and the ‘starting point’ for
relief. HMRC stated that, in its view, there should be an assumption
property business will not qualify for BPR, and the taxpayer must show
sufficient additional services and facilities are provided in order to
this assumption. The FTT dismissed that stance, confirming that HMRC
keep an open mind and not start from any assumption that property-based
businesses will not qualify for IHT relief.
If HMRC have
to make an assumption for BPR that the property-based business will
relief, is it therefore correct to say that any property business
Class 2 NIC to be paid?
Boundaries – Clarity by HMRC
It is clear
with regard to Class 2 NIC and BPR that HMRC must give greater clarity.
property owning clients would be happy to pay Class 2 NIC and qualify
number of benefits associated therewith. If such action works towards a
qualification for BPR then all the Class 2 hysteria will have purpose.
Class 2 NIC is being taken from property owners whilst still intending
them BPR then there is much to scream and shout about.
About the Author
Supplied by Julie Butler F.C.A.
Butler & Co, Bennett House, The
Dean, Alresford, Hampshire, SO24 9BH.
01962 735544. Email;
email@example.com, Website; www.butler-co.co.uk
F.C.A. is the author of Tax Planning for Farm and Land
Professional), Equine Tax Planning
ISBN: 0406966540, and Stanley: Taxation
of Farmers and Landowners (LexisNexis).
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Article Published/Sorted/Amended on Scopulus 2015-03-31 12:19:56 in Tax Articles