Rental Income Tax Calculator

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) 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.