A proposed move to apply National Insurance to landlords' rental income could see a mass exodus in the private rented sector, leading to higher rents and fewer homes to let.
That's according to research from Landbay and the Intermediary Mortgage Lenders Association (IMLA).
Seven in 10 mortgage brokers (72%) say their landlord clients will reduce their portfolios if the measure is introduced, Landbay's poll found.
Almost half (45%) expect their clients to sell all of their rental properties and quit the market completely.
More than a quarter of brokers said landlords would sell some assets but remain in the sector.
'If a million landlords sell-up'
Rob Stanton, Landbay's sales and distribution director, said: "Rachel Reeves is looking for tax raising measures that will enable Labour to claim it has not broken its election promise to increase VAT, income tax or NI.
"But she may not raise as much as she expects.
"The amount of tax she expects to raise is based on ONS figures which show that, during the most recent tax year data published, some 2.2 million landlords received £27 billion in rental income."
He added: "I am worried this might backfire though.
"First, she's not going to raise that much if a million landlords sell-up, however resilient the sector is in the face of market interference.
"Second, this could drive up rents – as demand for rental property outstrips diminishing supply and remaining landlords look to recoup the cost by raising rents."
Landlords paying NI on rental income
The change, rumoured to be under consideration by Chancellor Rachel Reeves for her November Budget, would mean landlords paying National Insurance on rental income for the first time.
Treasury officials reportedly believe the plan could raise £2.3 billion, helping to plug a £40 billion gap in the public finances.
Landbay's survey also reveals that just 5% of brokers thought their clients might invest to expand their portfolio.
Mr Stanton said: "If there's a positive here, given that smaller landlords are the ones most likely to leave the market, this could lead to increasing professionalisation of the private rented sector – and drive moves to limited company structures as landlords look to adapt to the change.”
NI move would hurt landlords
Meanwhile, the Intermediary Mortgage Lenders Association (IMLA) is also warning that extending National Insurance to rental income would hit individual landlords hardest, who make up more than 80% of the market.
It found that 58% of higher-rate taxpayers would see their total tax bill exceed their profits if the measure is introduced.
The association said such a move would widen the divide between landlords who operate as limited companies and those who own properties personally, creating what it called 'a two-tier system'.
IMLA's executive director, Kate Davies, said: "Extending National Insurance to landlords' rental income may appear an easy way to raise money, but in practice it would hit exactly the wrong people.
"It would punish smaller, often part-time landlords who provide homes for more than four million UK households, while leaving larger incorporated operators untouched."
She adds: "That is both unfair and economically counterproductive."
Student landlords should prepare
The managing director of Accommodation for Students, Simon Thompson, said: "The National Insurance plan being proposed should serve as a wake-up call for student landlords.
"Many smaller landlords already operate on tight margins, and an extra layer of taxation could make the numbers simply not stack up."
He added: "If private landlords exit, the supply of affordable student homes will shrink, and that will drive up rents for undergraduates who are already stretched financially.
"It may also mean that more student landlords decide to incorporate, but they'll need to plan strategically to be protected in this rumoured new tax landscape."
