No Class 2 NI on buy to let

Sudden rise in Class 2 NI demands. There?s been an increase in letters from HMRC contending that property investor clients owe six years? Class 2 NI. Worryingly, no copy of this letter is being sent to the agent so you may be unaware that your client has even received a demand and paid it. Buy to let has always been classed as an investment and not a trade so isn?t this a case of HMRC sending the letter in error? One of our subscribers wrote back to HMRC advising that no Class 2 NI was due as the client had no self-employment and thought that was the end of it. But HMRC then wrote saying that ?the person may be considered self-employed through property income? and therefore Class 2 NI was still due. But is it right?

Case law says different. Whether a portfolio of properties constitutes a business was addressed in Rashid v Garcia [2002] UKSC SpC 348 (see Follow up ). In this case, the taxpayer argued that Class 2 NI was due on rental income as he was trying to claim some benefits. The taxpayer owned four let properties, one of which was let to DSS tenants for just a few weeks at a time. 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.

Pro advice. When responding to the demand try to nip it in the bud by quoting the Rashid v Garcia case and explaining that your client spends considerably less time managing their properties than Mr Rashid and his family did.