Rental income has a genuinely different tax structure from employment or self-employment: there is no National Insurance, but since April 2020 mortgage interest can no longer be deducted from rental income before tax -- it only qualifies for a 20% tax credit afterwards, under the Section 24 rules. This guide works through realistic cash profit after tax for landlords with and without other income, for 2026/27.
Before April 2020, mortgage interest was simply deducted from rental income like any other expense, so tax was only paid on true economic profit. The Section 24 rules changed this in stages, and now apply in full: tax is calculated on rental profit before mortgage interest is deducted, and a flat 20% tax credit is applied to the interest paid afterwards. For a basic-rate (20%) taxpayer this produces broadly the same result as before. For a higher-rate (40%) or additional-rate (45%) taxpayer, it does not -- they are taxed on the interest element at their full marginal rate, but only receive relief at 20%, creating an effective extra cost on every pound of mortgage interest paid.
This also means rental profit before interest can push a landlord into a higher tax band even though their true cash profit, after paying the mortgage, is much lower -- a highly geared landlord can in rare cases owe more in tax and interest combined than their rental profit before interest, resulting in a real cash loss despite the property appearing profitable on paper.
2026/27 England rates. Rental profit before interest is added to any other income to determine the marginal rate; the 20% mortgage interest credit is then applied. Cash profit = rental profit before interest, minus mortgage interest paid, minus tax attributable to the rental income.
| Scenario | Rental profit (pre-interest) | Mortgage interest | Tax on rental (after credit) | Cash profit |
|---|---|---|---|---|
| Sole rental income, no other earnings | GBP 18,000 | GBP 5,000 | GBP 86 | GBP 12,914 |
| Basic-rate taxpayer + one rental property | GBP 10,000 | GBP 4,000 | GBP 1,200 | GBP 4,800 |
| Higher-rate taxpayer + rental property | GBP 20,000 | GBP 8,000 | GBP 6,400 | GBP 5,600 |
| Higher-rate taxpayer + small portfolio | GBP 40,000 | GBP 16,000 | GBP 12,800 | GBP 11,200 |
Figures are illustrative and exclude Stamp Duty Land Tax, Capital Gains Tax on sale, and running costs other than mortgage interest. For your exact position use the take-home pay calculator.
Because Section 24 only applies to individual landlords, many portfolio and higher-rate landlords hold new purchases inside a limited company, where mortgage interest remains fully deductible against Corporation Tax at 19--25% rather than Income Tax at up to 45%. The trade-off is higher mortgage rates for company borrowing, the cost and complexity of running a company, and a second layer of tax (dividend tax or a salary) when profits are eventually extracted for personal use.
Moving an existing personally-owned property into a company is rarely worthwhile purely for the tax treatment of future rental income, because the transfer is treated as a disposal for Capital Gains Tax and a purchase for Stamp Duty Land Tax purposes -- both charges usually outweigh the ongoing tax saving for a typical single buy-to-let property, though the calculation can favour incorporation for larger portfolios.
