Merging Income tax and National Insurance

The merging of national insurance and income tax has been discussed for the last few years by HM Revenue & Customs and others.

The way forward on this has now been made easier as dividends will be taxed at a higher percentage rate now, similar to that of national insurance rates for the self-employed.

Other sources of income that are taxed at a lower rate are: bank interest and property rental income. Bank income won’t be too difficult to add extra tax to, since most bank interest is now either tax free within the allowances, or is held within ISAs which are tax exempt.

Therefore, the only item left to be taxed more is property rental income, which will no doubt come at some point soon. When it does, and property rental income is taxed at, say, an extra 8% like self employed income is, then the merging of income tax and national insurance will take place. However, the question is when the government will do it. Hiking up the tax rate on property rental income may be unpalatable to a conservative government. We’ll have to wait and see.