UK Rental Income Tax Calculator

Why Section 24 changed everything for landlords

Before April 2017 a landlord deducted mortgage interest from rent like any other cost, so a higher rate taxpayer effectively got 40% relief on their interest. Section 24 of the Finance (No. 2) Act 2015 swept that away, phased in over four years and fully in force since 2020/21. Now mortgage interest is no longer an expense that reduces your taxable rental profit at all. Instead you receive a flat 20% tax reducer on the interest, regardless of your tax band. For a basic rate taxpayer the effect is broadly neutral. For a higher or additional rate taxpayer it is a real tax rise, and it is the single most important thing this calculator is built to show. Read the steps carefully, because the order in which the tool applies them is exactly where landlords lose money they did not expect to.

£15,000 rent through the Section 24 machine

Take a higher rate landlord with £15,000 of annual rent, £6,000 of mortgage interest, and £2,000 of other allowable expenses such as letting fees, repairs, and insurance. Note what does not happen: the £6,000 interest is not taken off the rent. Taxable profit is rent minus the other expenses only, so £13,000. Tax at 40% on that is £5,200. Then, and only then, the £6,000 interest produces a 20% credit of £1,200, which is subtracted from the bill to leave £4,000.

Under the pre-2017 rules the same landlord would have deducted the full £6,000 interest first, taxing £7,000 of profit at 40% for a bill of £2,800. Section 24 has added £1,200 to the annual tax on identical cash flows. The chart contrasts the two regimes.

The trap that pushes landlords into a higher band

There is a second, sneakier effect. Because rental profit is now measured before interest, your total taxable income looks larger. A landlord who would have stayed below £50,270 once interest was deducted can be tipped into the higher rate band, or have their £12,570 personal allowance start to taper away above £100,000, or trigger the High Income Child Benefit Charge. The 20% credit does not undo any of that, because it only reduces the final tax figure, not the income used to set your band. This calculator isolates the rental tax itself, so for landlords near a threshold I would always run the rest of your income through the income tax calculator as well to catch these knock on effects. The tool is aimed at individual buy to let owners; company landlords escape Section 24 entirely.

Which costs you can actually deduct

The other expenses figure in this tool is where landlords leave money on the table or, worse, overclaim. Genuinely allowable revenue costs include letting agent and management fees, landlord insurance, ground rent and service charges, accountancy fees, and the cost of repairs that restore the property rather than improve it, such as redecorating or replacing a broken boiler with an equivalent. Costs that are not allowable against rental income include the capital cost of improvements, your own time, and mortgage capital repayments, while mortgage interest is handled separately through the 20% credit. There is also a small but useful shortcut: the £1,000 property allowance lets you deduct a flat £1,000 instead of actual expenses, which beats itemising when your real costs are below that, and removes the need to report at all if your gross rent is £1,000 or less. For most ongoing buy to let landlords the actual expenses route wins, but the allowance is handy for very small or occasional letting income.

Landlord questions

Do Scottish landlords face the same Section 24 rules?

The Section 24 mechanism is set by Westminster and applies UK wide, so a Scottish landlord still loses full interest relief and gets the same 20% credit. What differs is the rate applied to the rental profit itself, because Scotland sets its own income tax bands and rates. A Scottish higher or top rate taxpayer can therefore pay a different headline rate on the profit while the interest credit stays pegged at 20%, which actually widens the Section 24 penalty for them.

If my rental makes a loss, do I lose the interest credit?

You do not lose it permanently. The 20% credit can only reduce your tax bill to zero, not below it, so in a low profit or loss year any unused interest relief is carried forward and added to the following year's interest pool. Over the life of the let the relief is preserved, it just lands later than the cash outlay.

A practical word of caution: think hard before transferring a personally held portfolio into a limited company purely to dodge Section 24. The move can trigger capital gains tax on the deemed disposal and stamp duty land tax on the transfer, and those upfront costs often outweigh several years of saved income tax. Incorporation suits some landlords very well, but it is a calculation to run carefully, not a reflex.