England, Wales and Northern Ireland. Scottish income tax rates are not covered.
Extra tax because of the property
£1,746.00
Your total income tax bill is £6,232.00; without the rental income it would be £4,486.00.
Left after costs and tax
£6,254.00
Rent received, less expenses, mortgage interest and the tax above.
Better off deducting actual expenses
Mortgage interest is not deducted from rental profit. It instead produces a basic-rate tax reducer worth 20% of the lowest of three figures — your finance costs, your property profits, and your income above the personal allowance.
Here the binding figure is finance costs, giving a reduction of £1,600.00.
Deducting actual expenses
£1,746.00
Claiming the £1,000 allowance
£3,746.00
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About the Rental Income Tax Calculator UK
Since April 2020 a landlord cannot deduct mortgage interest from rental profit. That one change is why letting a property with a mortgage now costs far more tax than the arithmetic most people do in their head, and why a landlord can pay tax on a profit larger than the money that actually reached them.
Interest has not stopped mattering. It just moved. Instead of reducing the profit you are taxed on, it now produces a tax reducer worth 20% of it — the basic rate — regardless of what rate you actually pay. A basic-rate landlord is roughly where they were. A higher-rate landlord deducts at 20% what used to come off at 40%.
This calculator covers England, Wales and Northern Ireland. Scotland sets its own income tax rates and is deliberately not modelled here rather than approximated.
Mathematical Formula & Logic
Property profit, first. Interest is not in it:
Profit = rental income − allowable expenses
Repairs, letting agent fees, insurance, ground rent and service charges all come off. Mortgage interest does not, and neither does any capital repayment.
Then the tax reducer. It is 20% of the lowest of three amounts:
1. Finance costs for the year, plus anything carried forward from earlier years
2. The profits of the property business
3. Adjusted total income — your income above the personal allowance, excluding savings and dividends
Whichever of the three is smallest, the shortfall against your actual finance costs is carried forward indefinitely and can be used in a later year. The reducer cannot create a refund; it can take your bill to zero and no further.
Why three limbs rather than one
Each stops a different kind of over-relief. Capping at finance costs stops you claiming relief you never paid. Capping at property profits stops a loss-making let generating relief against unrelated income. Capping at adjusted total income stops relief exceeding the tax you owe in the first place. In most ordinary cases the first limb binds and the reducer is simply 20% of your interest — but the other two catch precisely the highly geared cases the rule was written for.
The property allowance is a different route, not an addition
Instead of deducting real expenses you may deduct a flat £1,000. It is worth taking when your expenses are genuinely trivial. But gov.uk is explicit: you cannot use the property allowance if you claim the tax reducer for finance costs. So a landlord with a mortgage is choosing between the two, and for anything but a very small mortgage the reducer is worth more.
Below £1,000 of gross property income there is nothing to do at all — it need not be reported.
Step-by-Step Example
A landlord earns £35,000 from employment and lets one flat. Rent is £18,000, allowable expenses £2,000, and mortgage interest £8,000.
1. Property profit: 18,000 − 2,000 = £16,000. The interest is not deducted — that is the whole restriction.
2. Total income: 35,000 + 16,000 = £51,000.
3. Income tax on that, after the personal allowance, is £7,832.
4. Tax reducer: 20% of the lowest of £8,000 of interest, £16,000 of profit, and £38,430 of adjusted total income. Interest binds, so 20% × 8,000 = £1,600.
5. Final bill: 7,832 − 1,600 = £6,232.
Without the property they would have paid £4,486, so the flat costs them £1,746 in tax.
What the old rules would have given
Before 2020 the £8,000 of interest came off the profit. Property profit would have been £8,000 rather than £16,000, total income £43,000, and the tax bill lower by roughly £1,600 more than the reducer now returns for a higher-rate taxpayer. That gap is the entire policy.
When profits cap the relief, and what carries forward
Take a more geared example: rent £20,000, expenses £7,000, interest £15,000, salary £36,000.
Property profit is 20,000 − 7,000 = £13,000, which is less than the £15,000 of interest. Profits bind, so the reducer is 20% × 13,000 = £2,600, and £2,000 of interest goes unrelieved.
That £2,000 is not lost. It carries forward. If the following year brings £24,000 of rent against £2,000 of expenses and the same £15,000 of interest, the available finance costs become 15,000 + 2,000 = £17,000, profits are £22,000, and the whole £17,000 is relieved: a reducer of £3,400.
Why this hit higher-rate landlords hardest
The reducer is 20% for everyone. A basic-rate taxpayer was already relieving interest at 20%, so little changed for them. A higher-rate taxpayer used to deduct interest at 40% and now relieves it at 20% — half the value.
Worse, because interest no longer reduces profit, it no longer reduces total income either. A landlord whose real economic profit is modest can be pushed into the higher-rate band, or past £50,000 for the child benefit charge, or past £100,000 where the personal allowance tapers, purely by income they never kept. That second-order effect is often larger than the headline change.
Profit £21,000, no other income → capped at £8,430
None — no tax due
Income below the personal allowance
Nil
All of it
The reducer cannot create a refund
Frequently Asked Questions
No. Since April 2020 finance costs are not an allowable expense against property profit at all. They instead give a tax reducer worth 20% of the qualifying amount, applied after your tax is calculated. Capital repayments were never deductible and still are not — only the interest element ever qualified.
Because the interest you paid is no longer subtracted before tax. If you take £18,000 of rent, spend £2,000 on repairs and pay £8,000 of mortgage interest, £8,000 reaches you but you are taxed on a £16,000 profit. The reducer gives back 20% of the interest afterwards, which softens it without closing the gap for a higher-rate taxpayer.
Twenty pence for every pound of qualifying interest, and no more, whatever rate you pay. A basic-rate landlord is broadly where they were. A higher-rate landlord used to relieve interest at 40% and now relieves it at 20%, so the same mortgage costs them noticeably more tax than before 2020.
It carries forward indefinitely. If profits or your income above the personal allowance cap the reducer, the difference between that cap and your actual finance costs is available in later years. A year with £15,000 of interest but only £13,000 of profit carries £2,000 forward, which is then added to the next year's finance costs.
Only if your expenses are tiny and your mortgage interest is very small, because the two cannot be combined — gov.uk states you cannot use the property allowance if you claim the finance cost reducer. Giving up 20% of several thousand pounds of interest to gain a £1,000 deduction is almost always the wrong trade. Below £1,000 of gross rent there is nothing to report at all.
No. Scotland sets its own income tax rates and bands for non-savings income, and they differ from the rest of the UK in both number and thresholds. Rather than approximate them, this calculator states its scope: England, Wales and Northern Ireland. The Section 24 rules themselves are UK-wide; it is the rates applied on top that differ.
No. It can reduce your income tax to zero and stops there. If your income is below the personal allowance there is no tax to reduce, so the whole of that year's finance costs carry forward instead of being wasted.
Because interest no longer reduces your total income. Rental profit now enters your income at its full amount, which can push you past £50,000 where the high income child benefit charge starts, or past £100,000 where the personal allowance tapers away at an effective 60%. For some landlords this second-order effect costs more than the headline change to interest relief.
No. This covers income tax on rental profit only. Selling a let property is a separate capital gains calculation with its own rates, annual exempt amount and reporting deadline, which is 60 days from completion for UK residential property.