Tax on rental income, with interest handled properly

Mortgage interest stopped being an expense in 2020. Most calculators still treat it as one.

Rent received for the year

Before any costs

Allowable expenses

Repairs, letting fees, insurance — NOT mortgage interest

Mortgage interest and finance costs

Kept separate because it is no longer deducted from profit

Other taxable income

Salary, pension, self-employment — it shares one Personal Allowance

Unused finance costs brought forward

From earlier years, if the reduction was capped by profit

Tax on your rental income

£3,546.00

£4,954.00 left after costs, interest and tax

Taxable profit

£14,500

interest is NOT deducted here

Finance cost reduction

£1,200

20.0% of the lowest of three limits

Carried forward

£0

only when profit is the binding limit

How the tax is worked out
Rent received	£18,000.00
Allowable expenses	−£3,500.00
Taxable profit	£14,500.00
Tax on that profit	£4,746.00
Finance cost tax reduction	−£1,200.00
Tax due	£3,546.00

The reduction is 20% of the lowest of these three
Finance costs available← the binding limit	£6,000.00
Property business profit	£14,500.00
Income above the Personal Allowance	£46,930.00
Amount the reduction is based on	£6,000.00

Interest is not an expense any more

Mortgage interest stopped being deductible from rental profit in 2020. It now gives a tax reduction at the basic rate instead, which is why a higher-rate landlord pays more than the old arithmetic suggests — and why heavy borrowing can push you into a higher band even though your cash position has not changed.

The link carries your figures so anyone opening it sees the same calculation. Nothing is sent anywhere.

Figures for the 2026/27 UK tax year. Rates last checked against HMRC on 31 August 2026. See every source.

How to work out tax on rental income

Mortgage interest has not been deductible from rental profit since 2020. It gives a tax reduction at the basic rate instead, and that single change is why a higher-rate landlord pays more than the old arithmetic suggests — and why heavy borrowing can push someone into a higher band without their cash position changing at all. Calculators that still subtract interest from rent understate the bill, which is the direction that produces a shortfall at filing time rather than a pleasant surprise. There is a second part most pages skip: the reduction is 20% of the lowest of three amounts, not simply 20% of your interest. Which of the three is binding decides something that matters a great deal — unused interest carries forward when your property profit is the limit, and is lost when your income above the Personal Allowance is the limit. This page shows all three, so you can see which one is holding your relief down.

1Enter the rent received and your allowable expenses — leave mortgage interest out of the expenses box.
2Put mortgage interest and other finance costs in their own box, because they are treated differently.
3Add your other taxable income; it shares one Personal Allowance with the rental profit.
4Read the three limits to see which one is capping your relief, and whether the unused part carries forward.

FAQ

Why can I not deduct my mortgage interest from the rent?

The deduction was phased out between 2017 and 2020 and is now nil. Interest instead produces a reduction in your tax bill at the basic rate. For a basic rate taxpayer the outcome is broadly similar; for a higher rate taxpayer it is not, because the relief arrives at 20% while the profit is taxed at 40%.

Why is my relief less than 20% of my interest?

Because the reduction is 20% of the lowest of three amounts: your finance costs, your property profit, and your income above the Personal Allowance. Whichever is smallest sets the figure. The third one catches landlords with modest other income and a large mortgage, and it is the one most calculators leave out entirely.

Does unused interest carry forward?

Only when the limit that applied was your property profit. If the reduction was capped by your income above the Personal Allowance instead, the unused part is not carried forward at all. Two results that look identical, two very different outcomes, which is why this page names the binding limit rather than just showing a number.

What is the property allowance and when does it apply?

It is a £1,000 exemption you can use instead of deducting your actual expenses — never as well as. This calculator uses whichever is larger and tells you which one it applied, because switching between them silently is exactly the sort of thing that makes a tax return stop matching the calculator.

What is not covered?

Furnished holiday lettings, rent-a-room relief, jointly owned property, rental losses brought forward, holding property through a company, and capital allowances. It also assumes residential property in England, Wales or Northern Ireland.