Rental Income Tax Calculator 2025/26

Allowable expenses include maintenance and repairs (not improvements), insurance, letting agent fees, utility bills (if paid by you), professional fees, and some travel costs. Mortgage interest receives a 20% tax credit rather than being fully deductible. Capital improvements should be claimed as capital allowances or deducted from capital gains tax when you sell.

Mortgage interest relief is now given as a 20% tax credit instead of a deduction from rental income. For example, if you pay £10,000 in mortgage interest, you'll receive a £2,000 reduction in your tax bill, regardless of your tax band. This is less beneficial for higher and additional rate taxpayers compared to the old system.

You must report rental income on a Self Assessment tax return if your rental income is £10,000 or more before allowable expenses, or £2,500 or more after allowable expenses. If your rental income is between £1,000 and £2,500 after expenses, contact HMRC as you may need to report it. The £1,000 property allowance means you don't need to report rental income under £1,000.

Rental income is added to your other income to determine your tax band. For example, if you earn £40,000 from employment and £15,000 from rental property (after expenses), your total income of £55,000 means some rental income will be taxed at the higher rate. This can affect benefits and allowances that depend on your total income.

This depends on various factors including your tax band, number of properties, and long-term plans. Limited companies pay corporation tax (25% on profits over £50,000, 19% on profits under £50,000) instead of income tax, and can still deduct mortgage interest as a business expense. However, extracting profits through dividends incurs additional tax, and there are setup and running costs to consider. Generally beneficial for higher-rate taxpayers with multiple properties.

Section 24 (Finance Act 2015) removed the ability to deduct mortgage interest from rental income before calculating tax. Since April 2020, landlords receive a 20% tax credit on mortgage interest instead. This significantly increases tax bills for higher-rate (40%) and additional-rate (45%) taxpayers. For example, a higher-rate taxpayer previously got 40% relief on mortgage interest, but now only gets 20%, effectively doubling the tax cost of mortgage interest.

Yes, this is a major issue. Under Section 24, your rental income is added to your other income BEFORE mortgage interest relief is applied. This can push you from the basic rate (20%) into the higher rate (40%) or additional rate (45%). For example, if you earn £40,000 from employment and have £15,000 rental profit (before mortgage interest), your total income is £55,000, putting you in the 40% band, even though your actual profit after mortgage interest might be much lower.

The property allowance is a £1,000 tax-free allowance for property income. If your total rental income (before expenses) is £1,000 or less, you don't pay tax and don't need to report it to HMRC. If your rental income is over £1,000, you can choose to either: (1) Deduct actual allowable expenses, or (2) Deduct the £1,000 property allowance instead. Choose whichever gives you the lower tax bill. Most landlords with mortgages will benefit from claiming actual expenses.

You CANNOT claim: (1) Capital improvements (e.g., extensions, conversions, new kitchen) - these are claimed against capital gains tax when you sell, (2) Mortgage capital repayments (only interest qualifies for 20% tax credit), (3) Personal expenses or private use costs, (4) Depreciation (but you can claim wear and tear allowance for furnished properties), (5) Fines or penalties. Always keep receipts and distinguish between repairs (allowable) and improvements (not allowable).

Your effective tax rate is the actual percentage of rental profit you pay in tax. Calculate it as: (Final Tax Due ÷ Taxable Rental Income) × 100. For example, if your taxable rental income is £10,000 and you pay £3,500 in tax (after mortgage interest relief), your effective rate is 35%. This is often higher than your marginal tax rate due to Section 24 changes. Use our calculator to see your exact effective rate.

If your allowable expenses exceed your rental income, you make a property loss. You can carry this loss forward to offset against future rental profits (not other income). However, under Section 24, mortgage interest is not included in the loss calculation - it's treated separately as a 20% tax credit. This means you can't use mortgage interest to create a loss to carry forward. Losses can be carried forward indefinitely until used.

No, rental income is investment income, not earned income, so you don't pay National Insurance contributions on it. You only pay income tax. This is one advantage of rental income over employment income. However, if you provide substantial services to tenants (e.g., running a B&B or serviced accommodation), HMRC may classify it as trading income, which is subject to National Insurance.

If your total income (including rental income) exceeds £100,000, you lose £1 of personal allowance for every £2 over this threshold. Your personal allowance is completely lost at £125,140. This creates an effective 60% tax rate on income between £100,000-£125,140 (40% income tax + 20% from lost allowance). Under Section 24, rental income is counted BEFORE mortgage interest relief, making it easier to breach the £100,000 threshold.

You must keep records for at least 5 years after the 31 January submission deadline. Keep: (1) All rental income records (bank statements, rent receipts), (2) Receipts for ALL expenses (repairs, insurance, agent fees), (3) Mortgage statements showing interest paid, (4) Tenancy agreements, (5) Property purchase and sale documents, (6) Improvement costs (for capital gains tax). Use accounting software or spreadsheets to track income and expenses monthly. HMRC can request these records during an investigation.

No, rental losses can only be offset against future rental profits, not against salary, dividends, or other income. This is called "sideways loss relief restriction" for property businesses. You must carry the loss forward and use it against rental profits in future years. However, if you have multiple rental properties, you can offset losses from one property against profits from another in the same tax year.

If you or your partner claim Child Benefit and either of you has income over £60,000, you face the High Income Child Benefit Charge. The charge is 1% of Child Benefit for every £200 of income over £60,000, fully removing the benefit at £80,000. Rental income (before mortgage interest relief under Section 24) counts toward this threshold. For example, if you earn £50,000 salary and £15,000 rental profit, your total income is £65,000, triggering a 25% charge (£2,500 over threshold ÷ £200 × 1%).

Most landlords use cash basis (simpler - record income when received and expenses when paid). You can use cash basis if your rental income is under £150,000. Accruals basis (record income when earned and expenses when incurred) is required for larger portfolios or if you want to claim certain reliefs. Cash basis is recommended for most individual landlords as it's simpler and aligns with how you manage your bank account. Consult an accountant if your rental income exceeds £150,000 or you have complex arrangements.