Rental Income Tax Calculator UK
Work out the tax on your rental income — and the rule that quietly doubled many landlords’ bills: you can no longer deduct your mortgage interest, only claim a 20% credit on it.
You pay Income Tax on your rental profit — rent minus allowable expenses — added on top of your other income and taxed at your marginal rate of 20%, 40%, or 45%. The change that catches landlords out is Section 24: since April 2020, individual landlords can no longer deduct mortgage interest as an expense. Instead you’re taxed on rent before the interest, then given a flat 20% tax credit on it. For a basic-rate landlord this nets out evenly. But a higher-rate landlord with £8,000 of mortgage interest now gets only £1,600 of relief instead of £3,200 — so the same property that cost £4,000 in tax under the old rules now costs £5,600, a £1,600 jump for no extra income. Worse, because you’re taxed on gross rent, the larger profit figure can push a basic-rate landlord into the higher-rate band without them realising. This calculator shows your real rental tax after Section 24, and what drives it. For the wider deal, see the Buy-to-Let Yield Calculator; for selling up, the Capital Gains Tax Calculator.
Rental income and ownership
Allowable expenses
Mortgage interest and finance costs
Other income and allowances
Payments on account
Rental tax result
Estimated rental income tax
Calculating…
Calculating…
Taxable rental profit
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Tax before interest credit
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Mortgage interest credit
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Net rental cashflow
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Amount due now
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Monthly set-aside
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Rental income tax — quick lookup
The left table shows the tax on your rental profit (before any mortgage interest) at basic and higher rates, since the profit is added on top of your other income. The right shows the Section 24 effect on a typical mortgaged let. The headline is in the right table: the same property costs a basic-rate landlord nothing extra, but a higher-rate landlord £1,600 more, purely because of how mortgage interest is now treated.
| Profit | Basic rate | Higher rate |
|---|---|---|
| £1,000 | £200 | £400 |
| £5,000 | £1,000 | £2,000 |
| £10,000 | £2,000 | £4,000 |
| £20,000 | £4,000 | £8,000 |
| Landlord | Old rules | Now |
|---|---|---|
| Basic rate | £2,000 | £2,000 |
| Higher rate | £4,000 | £5,600 |
| Mortgage interest | £8,000 | £8,000 |
| Credit (20%) | n/a | £1,600 |
Left table: rental profit (rent minus expenses, before mortgage interest) added on top of a £30,000 income (basic) or £60,000 income (higher), taxed at the marginal rate. Right table: a let with £20,000 rent, £2,000 expenses, and £8,000 mortgage interest. Under the old rules tax was on £10,000 net profit; under Section 24 it’s on £18,000 with a flat £1,600 credit. The basic-rate landlord is unaffected; the higher-rate landlord pays £1,600 more.
How rental income tax works
Rental income isn’t taxed in isolation — it’s added to your other income and taxed at your marginal rate. Most of it is straightforward: rent in, expenses out, tax on the profit. The complication, and the reason so many landlords are worse off than they expect, is one rule about mortgage interest.
Profit, not rent, and at your marginal rate
You pay tax on your rental profit: gross rent minus allowable expenses such as letting agent fees, insurance, repairs, ground rent, and accountancy. That profit is added on top of your salary and other income, then taxed at whatever band it falls into — 20%, 40%, or 45%. Improvements (as opposed to repairs) don’t count: they’re capital costs that reduce your Capital Gains Tax when you sell, not your income tax now.
The Section 24 trap: mortgage interest is no longer an expense
Here’s the rule that changed everything. Since April 2020, individual landlords cannot deduct mortgage interest as an expense. Instead, you’re taxed on your profit before interest, and then given a flat 20% tax credit on the interest you paid. For a basic-rate taxpayer this is neutral — the 20% credit exactly matches the 20% relief they’d have got. But a higher-rate taxpayer who used to get relief at 40% now gets only 20%, losing half their relief. An additional-rate landlord loses even more.
Why it can quietly push you into the higher band
Because your taxable figure is now gross rent (before interest), it’s bigger than your real profit. That inflated number is what gets added to your income — so a landlord whose true profit is modest can be pushed over the £50,270 higher-rate threshold by rent that mostly goes straight to the bank. They end up paying 40% tax on rental income they never really keep. This is the cruelest part of Section 24: it can turn a basic-rate landlord into a higher-rate one on paper.
Worked examples
Four scenarios showing the marginal-rate tax, the Section 24 hit, the threshold trap, and the spouse fix.
Scenario 1 · Basic-rate landlord, mortgaged let
Section 24 makes no difference
Taxed on £18,000 profit, then £1,600 credit
Tax: £3,600 − £1,600 = £2,000 (same as old rules)
A basic-rate landlord is taxed on £18,000 (rent minus expenses, before interest) at 20% — £3,600 — then receives a 20% credit on the £8,000 interest, worth £1,600. The result is £2,000, exactly what they’d have paid under the old rules where interest was deductible. For basic-rate landlords, Section 24 is a wash: the credit gives back precisely what the lost deduction took away.
Scenario 2 · Higher-rate landlord, same let
The £1,600 Section 24 hit
Taxed on £18,000 at 40% = £7,200, then £1,600 credit
Tax: £7,200 − £1,600 = £5,600 (was £4,000)
The identical property in the hands of a higher-rate landlord tells a different story. They’re taxed on the same £18,000, but at 40% — £7,200 — and still only get a 20% credit of £1,600, leaving £5,600. Under the old rules, deducting the £8,000 interest first meant tax on £10,000, or £4,000. Section 24 has cost them £1,600 a year, a 40% increase, on income that hasn’t changed.
Scenario 3 · The hidden band trap
Pushed into the higher rate
£18,000 profit stacks on salary: £5,270 at 20%, £12,730 at 40%
Tax: £6,146
A landlord with a £45,000 salary has only £5,270 of basic-rate band left. Their £18,000 rental profit fills that, then spills into the 40% band — so most of it is taxed at the higher rate, for £6,146. With a mortgage, the effect is worse, because the gross-rent figure is even larger. The lesson: rental income doesn’t just get taxed, it can drag the rest of your finances into a higher band too.
Scenario 4 · Transferring to a basic-rate spouse
Neutralising Section 24
Now taxed at 20% with a 20% credit on interest
Section 24 impact: nil (credit offsets the tax)
Because Section 24 only bites above the basic rate, holding the property in the name of a basic-rate spouse removes the problem: the 20% credit exactly offsets the 20% tax on the interest portion. Couples can transfer all or part of a property to the lower-earning partner to cut the bill — a common, legitimate move. It must be a genuine transfer of beneficial ownership, and there can be wider consequences, so advice helps.
What decides your rental tax — and how to cut it
Most guides just say “you pay tax on the profit”. But what you actually owe, and how much you can legally reduce it, hinges on four things — and Section 24 makes the first one decisive. Work through these:
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1
What’s your tax band — and does the property mortgage?
This decides whether Section 24 hurts you. A basic-rate landlord is unaffected; a higher-rate one loses half their interest relief. A heavily mortgaged let owned by a higher-rate taxpayer is where the pain concentrates. Know your band and your interest cost first.
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2
Could you use a spouse’s band?
Transfers between spouses are tax-free, and shift the income to their band. Holding a property (or a share) in a basic-rate spouse’s name neutralises Section 24, since the 20% credit offsets the 20% tax. It can also use a second personal allowance. The transfer must be genuine.
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3
Are you claiming every allowable expense?
Letting fees, insurance, repairs (not improvements), ground rent, service charges, accountancy, and advertising are all deductible. Many landlords under-claim. Note the repairs-versus-improvements line: fixing is an expense now; upgrading is capital that reduces CGT later.
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4
Would pension contributions or a company help?
A pension contribution lowers your income, which can keep you out of the higher band and soften Section 24. Some landlords incorporate, since limited companies still deduct mortgage interest in full — but incorporation has its own costs and CGT and stamp duty on transfer.
Same £20k let with £8k interest — three owners
Identical property, very different tax:
The same mortgaged property costs a basic-rate landlord £2,000 and a higher-rate one £5,600 — a £3,600 gap created mostly by Section 24 and the tax band beneath it. That’s why “how much tax on rental income?” depends so heavily on who owns it. For basic-rate landlords, the rules are gentle and the profit is simply taxed at 20%. For higher-rate landlords with mortgages, the interest restriction is the defining issue, and the realistic levers are a spouse’s band, pension contributions, claiming every expense, or — for larger portfolios — incorporation. The calculator works out your real bill after the 20% credit.
Allowances and reporting
If your rental income is small, the £1,000 property allowance lets you deduct a flat £1,000 instead of actual expenses (use whichever is higher, never both). Letting a furnished room in your own home can instead use Rent a Room relief, with £7,500 of such income tax-free. Rental profits are reported on the UK Property pages of your Self Assessment return by 31 January, and rental losses can be carried forward to offset future rental profits. From April 2026, Making Tax Digital for Income Tax brings quarterly digital reporting for landlords above the income threshold.
Two scenarios that change the picture
What if…
You’re a higher-rate landlord with a big mortgage?
What if…
You moved the property to a basic-rate spouse?
Key rental income tax terms explained
Landlord tax centres on rental profit, the Section 24 interest restriction, and the allowances and reliefs around them. The ten terms below cover what you’ll meet working out your bill.
- Rental profit
- Your gross rent minus allowable expenses — the figure you’re taxed on. It’s added to your other income and taxed at your marginal rate. Crucially, mortgage interest is no longer subtracted here.
- Section 24
- The rule, fully in force since 2020, that replaced mortgage interest deduction with a 20% tax credit for individual landlords. Neutral for basic-rate taxpayers, costly for higher and additional-rate ones.
- Finance cost credit
- The 20% basic-rate credit on mortgage interest and loan fees that replaced full relief. It’s worth 20% regardless of your tax rate, and is capped at 20% of your property profits.
- Allowable expenses
- Costs you can deduct from rent — letting fees, insurance, repairs, ground rent, service charges, accountancy, advertising. They must be wholly and exclusively for the letting. Improvements don’t count.
- Repairs vs improvements
- The line that decides timing: repairs are deductible now against income, while improvements are capital costs that reduce your Capital Gains Tax when you sell. Replacing like-for-like is usually a repair; upgrading is an improvement.
- Marginal rate
- The rate on your next pound of income — 20%, 40%, or 45%. Rental profit stacks on your other income, so it’s taxed at your marginal rate, and a large profit can straddle two bands.
- Property allowance
- A £1,000 flat deduction you can claim instead of actual expenses, useful when costs are low. You use the allowance or real expenses, never both, and it can’t create a loss.
- Rent a Room relief
- A separate scheme giving £7,500 of tax-free income from letting a furnished room in your own home (£3,750 for joint lettings). Distinct from letting a whole property as a buy-to-let.
- Rental loss
- A loss from your property business, which can be carried forward to offset future rental profits. It can’t be set against other income such as your salary, only against later rental income.
- Incorporation
- Holding property through a limited company, which still deducts mortgage interest in full. It sidesteps Section 24 but brings Corporation Tax, dividend tax on extraction, and CGT and stamp duty on transfer.
Five mistakes landlords make with rental tax
Rental tax catches landlords out because Section 24 changed the rules and the deadlines are unforgiving. These five errors, drawn from the recurring r/UKPersonalFinance and r/HousingUK threads, are the costly ones.
Still deducting mortgage interest as an expense
The biggest error: treating mortgage interest as an allowable expense like it used to be. It isn’t — you’re taxed on rent before interest, then get a 20% credit. Reporting it the old way understates your taxable profit and gets corrected by HMRC, often with interest and penalties.
Cost: corrected return, interest, penalties Fix: report gross profit, claim the 20% creditNot realising you’ve been pushed into higher rate
Because tax is on gross rent, the inflated profit figure can tip you over the £50,270 threshold without you noticing — taxing your rental income, and sometimes more, at 40%. Check your total income including gross rental profit, not just your real take-home from the property.
Cost: 40% tax you didn’t budget for Fix: check total income against £50,270Confusing repairs with improvements
Repairs are deductible against income now; improvements are capital and only help with CGT later. Claiming a kitchen upgrade as a repair is wrong; missing a genuine repair wastes a deduction. Keep the distinction clear, and keep the receipts for both, as each matters at a different time.
Cost: wrong claim or a wasted deduction Fix: repairs now, improvements at saleIgnoring a basic-rate spouse
Higher-rate landlords often keep a let in their own name when a basic-rate spouse would neutralise Section 24 entirely. Transferring all or part of the property shifts the income to the lower band, where the 20% credit cancels the 20% tax. The transfer must be genuine, but the saving can be large.
Cost: thousands in avoidable higher-rate tax Fix: consider transferring to a lower-rate spouseNot reporting rental losses
A loss-making year feels like nothing to report, but rental losses carry forward to offset future profits — only if declared. Failing to report a loss wastes relief that could cut a profitable year’s tax later. Report it on the property pages even when there’s no tax to pay.
Cost: a wasted loss worth real tax later Fix: report losses to carry them forwardFrequently asked questions
How much tax do I pay on rental income in the UK?
You pay Income Tax on your rental profit — gross rent minus allowable expenses — added on top of your other income and taxed at your marginal rate of 20%, 40%, or 45%. So a £10,000 profit costs a basic-rate landlord £2,000 and a higher-rate one £4,000.
The complication is mortgage interest: it’s no longer an expense. You’re taxed on profit before interest, then given a 20% credit on the interest. This is neutral for basic-rate landlords but costly for higher-rate ones.
What is Section 24 and how does it affect me?
Section 24 is the rule, fully in force since April 2020, that stopped individual landlords deducting mortgage interest as an expense. Instead, you’re taxed on rent before interest and receive a flat 20% tax credit on the interest you paid.
A basic-rate landlord is unaffected, because the 20% credit matches the relief they’d have had. But a higher-rate landlord who used to get 40% relief now gets only 20% — losing half. On £8,000 of interest, that’s £1,600 of lost relief every year, on income that hasn’t changed.
Can I deduct my mortgage payments from rental income?
Not the way you might expect. You can’t deduct mortgage interest as an expense any more — you get a 20% tax credit on it instead. And you could never deduct the capital repayment part of a mortgage, only the interest.
Certain mortgage-related costs, like arrangement and broker fees for business purposes, can still be claimed as expenses, but these are usually small next to the interest. Report your profit before interest, then claim the 20% finance cost credit separately.
What expenses can landlords claim?
You can deduct costs incurred wholly and exclusively for the letting: letting agent fees, buildings and contents insurance, repairs and maintenance, ground rent and service charges, accountancy fees, advertising for tenants, and utility or council tax bills if you pay them.
The key exclusion is improvements. Replacing something like-for-like is a deductible repair; upgrading or adding something is a capital improvement, which instead reduces your Capital Gains Tax when you sell. Keep records of both — they each save tax at different times.
Why might my rental income push me into the higher tax band?
Because Section 24 means you’re taxed on gross rent before mortgage interest, the taxable figure is larger than your real profit. That bigger number is added to your income, so it can tip you over the £50,270 higher-rate threshold even if your actual profit is modest.
The result is rental income taxed at 40%, much of which goes to the lender rather than you. Always check your total income, including the gross rental profit figure, against the threshold rather than your real take-home from the property.
How can I reduce my rental income tax?
The main legitimate levers are: transfer the property (or a share) to a basic-rate spouse, which neutralises Section 24; claim every allowable expense; make pension contributions to lower your income and stay out of the higher band; and overpay the mortgage to cut the interest.
Some landlords incorporate, since limited companies still deduct mortgage interest in full — but this brings Corporation Tax, dividend tax, and CGT and stamp duty on transfer, so it suits larger portfolios. For most, a spouse’s band and full expense claims do the heavy lifting.
Do I need to report a rental loss?
You should. A rental loss can be carried forward to offset future rental profits, but only if you’ve reported it to HMRC. It can’t be set against other income such as your salary — only against later income from your property business.
So even in a year where the property made a loss and there’s no tax to pay, reporting it on the UK Property pages of your Self Assessment banks the loss for a more profitable year. An unreported loss is relief you simply can’t use later.
When do I report and pay tax on rental income?
Rental profits are reported through Self Assessment, on the UK Property pages, by 31 January following the tax year, with any tax due by the same date. Mortgage interest goes in the finance costs box, and HMRC works out the 20% credit from your figures.
From April 2026, Making Tax Digital for Income Tax phases in quarterly digital reporting for landlords with income above the relevant threshold. Keep digital records of rent and expenses to stay ready. See gov.uk for current rules.
Related calculators
Rental tax connects to the deal behind the property, the tax on selling it, and the financing that Section 24 hinges on. These calculators handle each piece.
Methodology & sources
How the maths works
The calculator first finds your rental profit: gross rent minus allowable expenses, with mortgage interest deliberately excluded under the Section 24 rules. That profit is added on top of your other income (above the £12,570 personal allowance) and taxed at the marginal rate of each band it falls into — 20% up to £50,270, 40% to £125,140, and 45% above. It then subtracts a finance cost credit equal to 20% of your mortgage interest, capped at 20% of your property profits and at the tax due. For a basic-rate landlord the 20% credit exactly matches the 20% tax on the interest portion, so Section 24 is neutral; for a higher or additional-rate landlord, the credit is worth less than the relief they have lost, so the bill rises. This is why the same mortgaged property produces very different tax depending on the owner’s band.
These are illustrative estimates to show how rental tax and Section 24 behave, not a personal tax computation. Real outcomes depend on your exact income and expenses, your mortgage interest, whether any Scottish income tax bands apply, the property allowance or Rent a Room relief, rental losses brought forward, and the current rates and thresholds, all of which can change. Holding property through a company, jointly, or in a spouse’s name changes the result substantially. The aim is to show the real cost after the 20% credit and what drives it — not to replace tailored accountancy advice.
Assumptions and conventions used
- Taxable profit: gross rent minus allowable expenses (interest excluded)
- Marginal rates: 20% / 40% / 45%, stacked on other income
- Section 24: 20% tax credit on mortgage interest, not a deduction
- Credit cap: lower of 20% of interest, 20% of property profit, or tax due
- Basic-rate landlord: Section 24 is neutral
- Improvements are capital (CGT), not income tax expenses
- Property allowance £1,000 · Rent a Room £7,500 (own home)
- Losses carry forward against future rental profit only
- Rates and thresholds shown are illustrative current UK figures