>> Download the calculator spreadsheet
Things to consider when using the calculator:
1. The guide tab will explain all you need to know about using the calculator - make sure you read it before starting.
2. The calculator is to be used as a guide only, it is no substitute for professional tax advice.
If you have any questions or require assistance please give us a call Simon Whittaker on 01732 471622 who can talk you through the process.
Buy to Let Tax Calculator
Are you a landlord, or looking to become a landlord earning rental income on a mortgaged property? Quickly calculate rental income tax on your buy to let property with our buy to let tax calculator!
With changes in tax relief and many landlords borrowing personally, our buy to let tax calculator helps you outline your future tax liabilities easily so that you can choose the best financial position regarding your mortgage. Our spreadsheet also factors in the 3% stamp duty surcharge.
What is BTL tax?
As a landlord, you are liable to pay tax on the income you receive from renting out any properties you own. It is important to remember that regulations around income tax are subject to change, so it is essential that you speak to your mortgage broker or tax advisor to get the most current information. We also update our BTL tax calculator as changes in regulations occur to give you accurate information.
What is Stamp Duty?
Stamp duty is an additional tax applied when you buy a property. From the end of June to the end of September 2021, stamp duty applies to the first £250,000 of the property’s cost, and from the beginning of October, this will return to the regular threshold of the first £125,000 of the property’s cost. An additional 3% stamp duty surcharge is applied on second homes and BTL properties. This is included in our Buy to Let tax calculator.
What is Considered Rental Income for Landlords?
In addition to the rental amount paid to you by your tenants each month, the following is also considered rental income for landlords when paid by the tenant:
- Utility bills for hot water, internet/broadband services, heating, and water
- Repairs made to the property
- Cleaning of communal areas
- Non-refundable deposits and money kept from returnable deposits
What Deductions Can Landlords Include?
Buy to Let tax deductions for landlords include:
- Property maintenance costs
- Interest on mortgages and loans used to repair the property
- Management fees for the property
- Ground rent
- Service charges and utility bills
- Accountancy fees
- Council tax
- Vehicle running costs
- Property and landlord insurance
- Costs for advertising the property
- Capital allowances for furnished holiday homes and commercial properties
- Wear and tear, allowances of 10% on furnished properties
Landlords cannot claim:
- Mortgage interest expense on loans taken out to purchase the property
- Home improvement costs
- Management fees paid to the landlord
- Personal costs
- Capital expenditures
- Full cost of mortgage or loans used to repair the property
How is tax calculated on buy to let income?
Between 2016 and 2020 there was a fundamental change in the manner in which BTL investors have received allowance for the cost of mortgage interest on loans taken out to buy BTL properties. From 6 April 2020 onwards individual investors cannot deduct this interest cost from rental income in arriving at their taxable profit – instead, they receive a tax credit of 20% of the interest cost. Whilst for some basic rate taxpayers this will make no difference, higher rate taxpayers will see their rental income taxed at 40% or more whilst their major expense (mortgage interest) is relieved only at 20%.
It should also be noted that the manner in which tax is calculated means that many basic rate taxpayers are pushed (by their rental income) into paying tax at the higher rates and thus suffer this penalty unexpectedly.
This restriction on tax relief on BTL mortgages does not apply to BTL properties that are bought by limited companies. Consequently, many BTL landlords have opted to purchase new properties within a limited company owned 100% by the landlord – indeed for many landlords it has been worthwhile to sell properties owned by them personally into limited companies set up specifically for the purpose of owning these properties. Before considering adopting such a strategy we recommend that landlords should seek specialist tax advice since the costs in SDLT and in Capital Gains Tax can be considerable.
Furthermore the restriction on tax relief for mortgages does not apply to homes that are let out as holiday homes and that meet certain criteria as regards lettings and availability.
Set out below is a basic guide to calculating income tax on your BTL income where the properties are owned by you personally.
To calculate the tax on your rental income, start by calculating your net profit or loss from BTL activities.
Rental Income – Allowable Expenses = Rental Profit
- Take the resulting amount and deduct your personal allowance (assuming that you do not have any salaried income that has already benefitted from utilising your personal allowance). You can find out your personal allowance here.
Rental Profit – Personal Allowance = Taxable Profit
- Then calculate your tax for the current financial year.
Taxable Profit x Income Tax Rate (%) = Amount Owing in Taxes on Rental Profit
Here’s an example of calculating the tax on a BTL property
If you are a basic rate taxpayer who has made £24,000 in rental income, has £3,000 in allowable expenses and £5,000 of mortgage interest, here’s how to calculate the tax owed:
- £24,000 (rental income) - £3,000 (allowable expenses) = £21,000 (rental profit)
- £21,000 (rental profit) - £12,500 (personal allowance) = £8,500 (taxable rental profit)
- £8,500 (taxable rental profit) x 20% (basic rate income tax) = £1,700 (tax due)
- Tax credit on interest expense of £5,000 x 20% (basic rate income tax) = £1,000
Thus £700 of tax is due and this will need to be reported to HMRC on an annual tax return.
If the landlord has salaried income that receives the benefit of his personal allowance then the taxable income on BTL activities will rise to £21,000 and, assuming that this does not cause his total income to exceed £50,000 (at which level higher rates of tax start to come into play) then tax will be 20% x £21,000 = £4,200 less the tax credit of £1,000 – i.e. £3,200.
BTL tax calculator
Because this is such a complex area where every landlord’s situation is different, we have produced an Excel calculator to enable you to assess the tax that applies to you. The calculator starts with the above situation but inputs can be varied to reflect your personal income and BTL profitability. The BTL tax calculator looks at the position as it is now for individual investors and for limited companies highlighting the impact of the restriction for tax on the interest deduction for individual investors.
Additionally the calculator looks at the position in 2023 when the rate of Corporation Tax is due to increase for larger companies (profits > £50,000), as well as showing the tax payable by individuals and limited companies owning holiday lettings businesses.
Use of this calculator is no substitute for obtaining independent and professional advice. The calculator is designed to help buy to let investors to assess the impact of differing ownership structures. No warranty is given by Mortgages for Business Limited as to its accuracy or suitability for individual investors.
>> Download the calculator spreadsheet
Recent Changes to Tax Regulations
As tax regulations are subject to change at any time, it is important to talk to a tax advisor to get the most current information. Here are some of the most recent changes to tax regulations that affect landlords with BTL mortgages.
- Tax relief – 2020/21 was the first year when landlords could not deduct mortgage interest from rental income. Instead, you receive a 20% tax credit on interest payments instead.
- Capital Gains Tax – The CGT allowance has increased for 2020-2021 from £12,000 to £12,300. Selling a rental property attracts tax on any Capital Gain at 18% for basic-rate taxpayers and 28% or higher for additional-rate taxpayers.
- Private Residence Relief – 2021 is the first full year since Private Residence Relief has been restricted to nine months. Generally BTL properties are not eligible for PRR from CGT – but under a concession, if the owner has lived in the house for some of the period of ownership, then this period of occupation can be treated as if it were up to nine months longer than it actually . Thus when any gain is apportioned between personal occupation and its usage as a BTL property, the taxable amount of the gain is reduced.. If you lived in the house at the same time as your tenants, you may also be eligible for up to £40,000 of lettings relief. The interaction of these reliefs is complex and investors should seek specialist advice.
- Higher-rate tax threshold – The personal allowance for basic-rate taxpayers has remained the same at £12,500. For higher-rate taxpayers, this threshold has increased to £50,000. The additional-rate taxpayer threshold has stayed the same at £150,000.
When is BTL Tax Due?
The financial year for individual UK taxpayers starts on April 6th and ends on April 5th of the following year. From this date, you have until the 31st of January to complete your income tax returns for the previous year and to pay any tax that is due.