Rental income tax calculator
Tax on a rental is charged on the profit, not the rent, and mortgage interest is handled by a 20% credit rather than as a cost. This shows the tax due and what you actually keep.
How rental tax is worked out
Two steps decide the bill. First the profit: your rent minus the allowable running costs, but not the mortgage interest. Then the tax: that profit is stacked on top of your other income and taxed at whatever rate the total reaches, 20%, 40% or 45%. There is no National Insurance on ordinary rental income.
The mortgage interest comes back in at the end as a tax reduction, not a cost. You get a credit worth 20% of your finance costs, capped at the rental profit. For a basic-rate landlord that 20% credit matches the 20% they would owe, so the effect is neutral. For a higher-rate landlord it does not: they are taxed at 40% on a profit that still includes the interest, and only get 20% back. That gap is the Section 24 restriction, and it is why heavily mortgaged higher-rate landlords can owe tax even when little cash is left.
Worked example
Rent of £14,400 with £2,200 of running costs gives a profit of £12,200. On top of a £45,000 salary this sits in the higher-rate band, so the tax before any credit is £3,826. The £6,000 of mortgage interest earns a 20% credit of £1,200, bringing the tax down to £2,626. After paying both the interest and that tax, the landlord keeps £3,574.
Common questions
How is rental income taxed?
You pay income tax on your rental profit, which is the rent minus allowable running costs. That profit is added on top of your other income and taxed at your marginal rate, so a higher-rate taxpayer pays 40% on it. There is no National Insurance on rental income from a normal buy-to-let.
What is Section 24 and the finance-cost credit?
Since April 2020 you can no longer deduct mortgage interest as a cost. Instead you get a tax credit worth 20% of your finance costs, capped at your rental profit. For a basic-rate landlord this roughly matches the old relief. For a higher-rate landlord it does not, which is why their real tax bill has risen.
Which costs can I deduct?
Day-to-day running costs like letting agent fees, repairs, insurance, ground rent and service charges are deductible from the rent. Mortgage interest is the exception: it is handled through the 20% credit instead of being a cost. Improvements are capital, not a running cost, so they are not deducted here.
Why does the calculator separate interest from other costs?
Because they are treated differently. Ordinary costs come straight off the rent to give the profit. Mortgage interest does not reduce the profit at all; it only earns the 20% credit against the tax. Keeping them in separate boxes is what makes the Section 24 effect visible.
Do I still have to declare rental profit under £1,000?
If your total property income is £1,000 or less you can use the property allowance and usually do not need to report it. Above that you report the rental profit through Self Assessment, even if the mortgage means little or no money is actually left over.