Landlord Tax Calculator (Section 24)

Landlord income tax starts from your net rental profit, which is total rental income less allowable expenses. Letting agent fees, maintenance and repairs, insurance, accountancy fees, advertising for new tenants and travel to the property all come off, as do council tax and utilities where you pay them, gas safety checks, EPCs and, on a leasehold, ground rent and service charges. Mortgage interest is the exception. Since April 2020 it cannot be deducted as an expense at all, and instead attracts a 20% tax credit against the finance costs you have paid.

That profit is then stacked on top of your other income to find the rate. The Personal Allowance covers the first £12,570, then 20% applies to £50,270, 40% to £125,140 and 45% above that. National Insurance does not touch rental income, which is treated as unearned. Someone earning £35,000 from a job with £12,000 of rental profit has a total of £47,000, so the rental slice stays in the basic rate band and costs £2,400. Move the salary to £50,000 and part of the same £12,000 is pushed into the 40% band. In Scotland rental profit is taxed at Scottish rates, so on the same £35,000 salary the £12,000 costs £3,220.98, because £3,338 of it lands in the 42% band that starts at £43,662.

The finance cost restriction, usually called Section 24, is what changed the economics of buy-to-let. Take rent of £15,000 against mortgage interest of £8,000. Under the old treatment the taxable profit was £7,000, giving tax of £1,400 for a basic-rate landlord or £2,800 for a higher-rate one. Now the interest is left in, so tax is charged on £15,000. A basic-rate landlord pays £3,000 less the £1,600 credit, which is £1,400 and unchanged. A higher-rate landlord pays £6,000 less the same £1,600, so £4,400. For 2026/27 the credit is 20% whatever your band, which is why heavily mortgaged higher-rate landlords can see tax take 60-80% or more of the profit left after interest. The credit is also limited to the lowest of the interest, the rental profit and your income above the Personal Allowance, and any interest that misses out is carried forward. From 6 April 2027 property income in England, Wales and Northern Ireland gets its own rates of 22%, 42% and 47%, and the credit rises to 22%. Those rates do not apply in Scotland.

Drawing the line between a repair and an improvement matters more than most landlords expect. Repairs come off the profit, improvements do not, though they reduce the gain when you sell. Furnishings follow the same logic through Replacement of Domestic Items relief, which covers like-for-like replacements but never the initial purchase. Mortgage capital repayments are not deductible either, only the interest through the credit. Travel to the property can be claimed at HMRC mileage rates of 55p and 25p where the journey is genuinely needed to manage the letting.

Selling brings a separate charge. Gains on residential property are taxed at 18% for basic-rate taxpayers and 24% for higher-rate, the higher figure having come down from 28% in April 2024, with an annual exempt amount of £3,000 against it, well below the £12,300 available in 2022. The return and the payment are both due within 60 days of completion, a rule in place since 27 Oct 2021. A property bought for £200k and sold for £350k with £15k of buying, selling and improvement costs produces a gain of £135k, or £132k after the exemption, and £31,680 of tax at 24%.

Holding property through a limited company sidesteps Section 24, because a company deducts mortgage interest from rent in the ordinary way and pays Corporation Tax at 25%, or 19% where profits are under £50k, rather than income tax of up to 45%. The costs push the other way. Incorporation runs to somewhere between £500 and £1,500, annual accounts £1,000 to £1,800, profits are taxed twice once you extract them as dividends, and moving an existing personal portfolio into a company triggers SDLT with the 5% surcharge. The structure tends to pay from about 2-3 properties or £30k of rental income, particularly for higher-rate taxpayers with sizeable mortgages, and rarely for a single flat.