Rental income tax calculator
Rental income tax is charged on the profit, rent minus allowable costs, at the landlord's marginal rate, under gov.uk's guidance on rental income tax. Mortgage interest earns a 20% credit rather than being deducted, under the Section 24 finance-cost restriction, and profits up to £1,000 fall under the property income allowance.
How is rental tax worked out?
Two steps decide the bill. First the profit: rent minus the allowable running costs, but not the mortgage interest. Then the tax: that profit is stacked on top of other income and taxed at whatever rate the total reaches, 20%, 40% or 45%, under gov.uk's rules on paying tax on rental income. 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. A credit worth 20% of finance costs is given, capped at the rental profit, under the Section 24 finance-cost restriction set out on gov.uk. For a basic-rate landlord that 20% credit matches the 20% otherwise due, so the effect is broadly neutral. For a higher-rate landlord it is not: tax is charged at 40% on a profit that still includes the interest, and only 20% comes back as credit. That gap is why heavily mortgaged higher-rate landlords can face a tax bill even when little cash is left over.
What does a worked example show?
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.
How is rental tax worked out?
Two steps decide the bill: the profit, which is rent minus allowable running costs but not mortgage interest, and the tax, which stacks that profit on other income at the applicable rate. Mortgage interest is then handled separately as a 20% credit against the tax, under the Section 24 finance-cost restriction on gov.uk, rather than being deducted as a cost.
What does a worked example show?
Rent of £14,400 with £2,200 of running costs gives a profit of £12,200. Stacked on a £45,000 salary this reaches the higher-rate band, so tax before any credit is £3,826. The £6,000 of mortgage interest earns a 20% credit of £1,200, bringing the estimated tax down to £2,626.
Sources & Rate Verification
Rates verified against official statutory guidance on 6 September 2026.