A national insurance raid on landlords’ rental income risks being the final straw for smaller landlords, with some already making plans to leave the sector.

The Chancellor is reportedly examining proposals for applying national insurance (NI) to rental income in the hope of raising £2bn. Earnings from property, pensions and savings are currently largely exempt from NI contributions.

But the rumours have already caused significant blowback from experts in property, with concerns it will lead to a squeeze on supply if landlords sell up and higher rents as landlords price the tax in.

“We’re already seeing landlords approaching us for controlled exits. Some are acting proactively, others are trying to protect their assets before it’s too late,” Mark Bailey, partner at property surveyance firm Landwood Group, said.

“Layering national insurance on top of rental income risks being the nail in the coffin for landlords already stretched to the limit… Margins are wafer-thin thanks to soaring mortgage rates, tougher regulation and an existing tax burden,” Bailey added.

Government policy in the last decade has substantially increased tax payable by private landlords, with private landlords only able to deduct 20 per cent of their mortgage interest from their rental income when calculating their tax bill, down from between 40 and 45 per cent in 2017.

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said: “The government may feel there is a bit more fat on this calf and can take some of it but a lot of careful thought is needed.”

“As it is, it is widely appreciated that there isn’t enough rental property on the market and if this plan to charge national insurance comes to pass, this extra tax may just be the final straw,” he said.