Rental profit is not the same as the cash left in your account
A buy-to-let mortgage can make a rental business feel unprofitable even while it has taxable property profit. For an individual residential landlord, qualifying mortgage interest does not reduce that profit. It normally generates a restricted tax reduction instead. Capital repayments reduce cash but are neither deductible expenses nor qualifying interest.
A simple “rent minus every cost, multiplied by your highest tax rate” calculation can therefore give the wrong answer. Rental profit may cross a band, consume the Personal Allowance or withdraw it through the taper. This calculator stacks property profit with your other non-savings income before calculating the tax and finance-cost reduction.
How the landlord tax calculation works
- Start with your taxable share of annual rental receipts across the same continuing UK residential property business.
- Subtract eligible non-finance expenses, or the property allowance if you qualify and elect it. Do not subtract residential mortgage interest or capital repayments from taxable profit.
- Use available ordinary brought-forward losses from that same business against its current profit. Surplus ordinary losses remain for future profits; no sideways relief is assumed.
- Add the resulting profit to other non-savings taxable income. Calculate Income Tax on that total and subtract Income Tax on the other income alone to isolate the property contribution.
- Apply the eligible residential finance-cost tax reduction, respecting its statutory limits and total Income Tax cap.
- For cash flow, subtract actual current cash expenses, current finance costs and the estimated property tax from rent. This is separate from taxable profit.
For 2026/27, the standard Personal Allowance is £12,570.00, tapering above adjusted net income of £100,000.00. Finance-cost relief is a tax reducer: it does not reduce adjusted net income for this taper. Savings and dividends, personal pension relief and other specialist income are excluded from this tool.
Section 24: the three limits on mortgage interest relief
HMRC's residential finance-cost calculation uses the UK basic rate for both supported years. The qualifying basis is the lowest of:
- Current eligible finance costs plus eligible unused finance costs brought forward.
- Property business profits after using brought-forward property losses.
- Adjusted total income above your Personal Allowance, after applicable losses and reliefs and excluding savings and dividends. This calculator models only non-savings income and the ordinary property losses entered.
The resulting tax reduction cannot make total Income Tax liability negative. In Scotland, the UK-basic-rate reduction can exceed the incremental starter-rate tax on rent while still reducing a positive combined liability; a negative property-attributable comparison is a reduction in tax on other income, not a refund claim. If the property-profit or adjusted-income limit restricts relief, unused eligible finance costs carry forward to the following year. A tax-liability cap is a different restriction: it does not by itself turn the capped tax reduction into finance costs to carry forward. HMRC explains the calculation and historic case studies.
The case-study page deliberately uses historic allowances and bands. Our examples below use the currently selected supported year instead; historic tax totals should not be copied into a current-year calculation. Carry-forward inputs must come from your own eligible tax records, not simply an unpaid mortgage balance.
Expenses or the property allowance?
The £1,000.00 property allowance belongs to the individual across eligible property income, not separately to every rental property. It is generally an alternative to allowable expenses. Where you elect the allowance, this tool caps the deduction at receipts so it does not manufacture a tax loss and does not also apply the residential finance-cost reduction.
Eligibility is not decided here. Conditions exclude some income from connected companies or partnerships and employers; Rent a Room interactions need checking. No new current-year finance-cost carry-forward is created under an allowance election. Existing opening finance-cost balances are preserved where no reducer is used, but prevent partial allowance relief where Income Tax remains payable. Allowance elections with existing property losses are left for individual review, rather than silently using an unsupported combination. Read HMRC's allowance guidance before electing it.
Under the actual-expenses option, qualifying repairs, insurance, letting fees and other revenue costs may be deductible. Improvements, purchase costs and mortgage capital are not treated as ordinary rental expenses here. Mixed-use costs need apportioning, and replacement domestic items have their own rules. Use HMRC's rental-income and expenses guidance to decide what belongs in the input.
Worked rental income tax examples
2026/27, England/Wales/NI, personally owned residential property. Figures are calculated by the same tested engine as the form. Each row shows its rent, expenses, current interest and other income; the losses row includes £12,000.00 ordinary losses brought forward. No capital repayments or capital spending are included.
| Scenario / rent / expenses / interest / other income | Taxable property profit | Property tax before relief / reduction | Property tax after relief | Cash after tax |
|---|---|---|---|---|
| Rent as only income £18,000.00 / £2,000.00 / £8,000.00 / £0.00 | £16,000.00 | £686.00 / £686.00 | £0.00 | £8,000.00 |
| Salary plus rental income £18,000.00 / £2,000.00 / £8,000.00 / £35,000.00 | £16,000.00 | £3,346.00 / £1,600.00 | £1,746.00 | £6,254.00 |
| Finance costs exceed property profit £10,000.00 / £2,000.00 / £15,000.00 / £35,000.00 | £8,000.00 | £1,600.00 / £1,600.00 | £0.00 | -£7,000.00 |
| Brought-forward losses restrict relief £18,000.00 / £2,000.00 / £8,000.00 / £35,000.00 | £4,000.00 | £800.00 / £800.00 | £0.00 | £8,000.00 |
| Eligible allowance, no interest relief £18,000.00 / £500.00 / £8,000.00 / £35,000.00 | £17,000.00 | £3,746.00 / £0.00 | £3,746.00 | £5,754.00 |
The interest-heavy example has negative cash flow but positive taxable property profit. The allowance row still subtracts actual cash costs in its cash result, even though they are not deducted from taxable profit. Neither outcome is a promise about a refund or a landlord's investment return.
Scotland, the tax year and future property rates
Ordinary property income remains within the existing non-savings Income Tax framework for 2025/26 and 2026/27. Scottish taxpayers use the Scottish bands for those years, based on tax residence, not the property's address. Residential finance-cost relief uses the UK basic rate (20.0%), with a cap to prevent a tax refund even where Scottish starter-rate tax is lower.
This calculator does not offer 2027/28 or apply later property-rate changes to 2026/27. The Finance Act 2026 enacts separate property rates of 22.0%, 42.0% and 47.0% from 6 April 2027, and moves finance-cost relief to the property basic rate. Devolved property-rate powers have also been commenced for Scotland and Wales; final devolved rates are not verified here. These are forward-looking changes, not the rates used above. Read HMRC’s technical note. A later-year engine needs separate rate ordering and verified devolved treatment before it is added. Use the tax-year selector for the year being reported rather than choosing a future-year headline.
The furnished holiday lettings special regime ended on 6 April 2025 for individuals' Income Tax and CGT. Normal property rules generally apply from 2025/26, including the residential finance-cost restriction where applicable. Transitional loss pools, capital allowances and disposal reliefs can require specialist review. Read the official abolition material.
Joint ownership and the scope of this estimate
Enter your own taxable share of receipts and costs. The tool does not allocate ownership, decide spouses' or civil partners' shares or validate a declaration or election. It models one continuing UK property business; combining unrelated loss or finance-cost pools can give an incorrect result.
Excluded: limited companies, partnership or trust calculations, commercial or mixed-use properties, Rent a Room, non-resident landlord complications, overseas property businesses, property income distributions, unusual loss relief, cessation cases, capital expenditure and allowances detail, CGT, stamp taxes, pensions, savings, dividends, student loans, High Income Child Benefit Charge and specialist reliefs. Limited-company finance costs must not be treated as if individual Section 24 applies.
Other income is entered before personal tax but after allowable deductions where applicable: salary, taxable pension or sole-trade profit, not turnover. The tool does not calculate NI on that other income, assume PAYE paid or settle your overall account.
Reporting rental income and Making Tax Digital
Check HMRC's property reporting requirements rather than assuming a low tax result means nothing needs reporting. MTD for Income Tax uses gross qualifying property income plus qualifying self-employment income, not the profit or cash flow shown here. Use the MTD Income Tax start-date checker with your relevant gross-income history.
Also self-employed? The self-employed tax calculator estimates trade profit and NI, but does not itself apply this property finance-cost reduction. The tax set-aside guide explains payment timing; annual property tax is not the same as the first January cash requirement. Do not add two separate calculator totals without checking how their income assumptions overlap.
Landlord and rental tax questions
How much tax do I pay on rental income in the UK?
Rental receipts less eligible non-finance deductions and available ordinary property losses give taxable property profit. That profit joins your other taxable income and can cross bands or reduce your Personal Allowance. This calculator estimates the incremental Income Tax, then applies eligible residential finance-cost relief. Ordinary property income does not normally attract Class 4 National Insurance.
Can I deduct mortgage interest from rental income?
For individual residential landlords, qualifying finance costs are not deducted from property profit in either supported tax year. Instead, a basic-rate tax reduction is normally available, subject to finance-cost, property-profit, adjusted-income and tax-liability limits. Mortgage capital repayments are not deductible and do not qualify for this reduction.
How does Section 24 mortgage interest tax relief work?
Take the lowest of eligible current plus brought-forward finance costs, property business profit after brought-forward losses, and adjusted total income above Personal Allowance (excluding savings and dividends). Apply the UK basic rate, then cap the reduction at Income Tax liability so it cannot create a refund. Costs not relieved because of the profit or adjusted-income limits can carry forward.
Can I claim the property allowance and expenses together?
No. The £1,000.00 property allowance is generally an eligible alternative to actual expenses, not an extra deduction. Electing the allowance also prevents a residential finance-cost tax reduction for that year. Current-year finance costs cannot become a new carry-forward when the allowance is used. Existing finance-cost balances can prevent a partial allowance election while tax remains payable. Check eligibility and existing losses with HMRC before choosing.
Can I have negative rental cash flow but taxable profit?
Yes. Mortgage interest and capital repayments can use cash without reducing taxable property profit. This calculator subtracts actual non-finance expenses, current finance costs and estimated property tax for its cash result, but excludes capital repayments and capital spending. Negative cash flow is not automatically a tax loss.
What figures do joint landlords enter?
Enter only your own taxable share of receipts, allowable expenses, finance costs and carry-forwards across the same UK property business. The calculator does not decide beneficial ownership or change the normal rules for spouses or civil partners. Confirm your taxable share, including any valid election, before entering figures.
Does this buy-to-let calculator work for a limited company?
No. It covers residential property owned personally by an individual. Limited companies have Corporation Tax and different finance-cost treatment; the individual Section 24 result must not be applied to them. Partnership, trust, commercial and specialist property cases also need a different assessment.
Does Scotland use different landlord tax rates?
For 2025/26 and 2026/27, ordinary property income is non-savings income subject to Scottish Income Tax bands for Scottish taxpayers. The residential finance-cost reduction still uses the UK basic rate and cannot exceed Income Tax liability. Where you live for tax, not simply where the property is located, decides the applicable bands.
Do furnished holiday lettings still have special Income Tax treatment?
The furnished holiday lettings special tax regime ended from 6 April 2025 for individuals' Income Tax and Capital Gains Tax. Normal property rules generally apply thereafter, including the residential finance-cost restriction where applicable. Transitional losses, capital allowances and disposal reliefs can need specialist advice and are not resolved here.
Is this my final Self Assessment bill?
No. It isolates Income Tax attributable to the property income you entered. It does not verify PAYE payments, payments on account, refunds or your HMRC account, and excludes savings, dividends, pension relief, student loans, High Income Child Benefit Charge and specialist reliefs. Your overall bill and payment dates may differ.
Official sources & review
SoloCalc's method uses the shared tested Income Tax bands and Personal Allowance calculation, without the self-employed NI calculation. Property profit, ordinary loss use and finance-cost restrictions are calculated separately. Results use entered pounds and pence; rounding and Self Assessment reporting conventions can create small differences from a completed return. No credentials or professional approval are claimed.
- Tax on rental income
- Rental income and allowable expenses
- Residential finance-cost relief: calculation and case studies
- HMRC Property Income Manual: finance-cost restriction
- Property allowance and eligibility
- Income Tax rates and Personal Allowance
- Scottish Income Tax
- ITTOIA 2005: finance-cost reduction calculation (2025/26 version)
- Furnished holiday lettings regime abolition
- HMRC: allowance and residential finance-cost relief interaction
- HMRC: ordinary property losses carried forward
- Income Tax Act 2007: tax reduction cannot exceed liability
- Finance Act 2026: property rates from 2027/28
- 2026 commencement of devolved property-rate powers
- HMRC: future property, savings and dividend tax changes
Rules checked 23 October 2026. General guidance only, not tax, legal or financial advice. Eligibility, ownership, expense classification, carry-forwards and transitional cases should be confirmed with HMRC or a qualified adviser.