Rental income is taxed as income, not as a separate landlord tax, and it lands on the property pages of a Self Assessment return alongside everything else you earned. What makes it feel like its own regime is the arithmetic in the middle: rental profit is not simply rent minus everything you spent, because some costs are deductible, some are not, and mortgage interest is treated differently again. This page sets out how the figure is built, which is what any rental income calculator is doing behind its box.
Rental profit is rent received less allowable expenses
Start with the rent for the tax year, add anything else the letting produced, then take off the costs of letting it: letting agent fees, insurance, ground rent and service charges, repairs and maintenance, council tax and utilities where you pay them, and the cost of replacing domestic items. What you cannot take off is capital: the purchase price, an extension, or an improvement that leaves the property better than it was rather than restoring it. The repair-versus-improvement line is where most rental computations go wrong, and it is a question of fact rather than of how the invoice is worded.
Mortgage interest is a credit, not a deduction
Finance costs on a residential letting are no longer deducted from rental income. Instead the profit is worked out before them and a basic-rate tax reducer is applied to the bill. For a basic-rate taxpayer the outcome is close to the old treatment; for anyone whose total income reaches the higher rate it is not, because the rental profit that pushes them there is now measured before the interest. This is the single biggest reason a landlord's bill can be larger than the cash the property produced, and it is why a calculator that simply subtracts interest gives the wrong answer.
The property allowance, and when to use it instead
Property income of £1,000 or less in a tax year is generally covered by the property allowance and need not be reported. Above that you can choose to deduct the £1,000 allowance instead of your actual expenses, which is worth doing when the expenses are lower than that, and not worth doing otherwise. It is a choice per tax year, so it can be taken in a quiet year and dropped in a year with a big repair.
More than one property, and joint ownership
Properties in the same category are pooled: profits and losses across your residential lettings are netted before the figure reaches the return, so a loss on one reduces the profit on another. Jointly owned property is split according to the beneficial interest, which for married couples and civil partners is presumed equal unless a declaration says otherwise. A calculator that assumes one property in one name will be wrong on both counts, which is why the figure it gives is a starting point rather than the return.
Questions people ask about landlord tax
Is landlord tax a separate tax?
No. Rental profit is added to your other income and taxed at the rates that apply to the total. There is no separate rate for landlords; what differs is how the profit is calculated.
Can I deduct my mortgage payment?
Not the capital part, and not the interest as a deduction. Interest on a residential letting gives a basic-rate tax reducer against the bill instead. Capital repayments are never deductible.
Do I have to report rent of a few hundred pounds?
Usually not: property income of £1,000 or less in a tax year is covered by the property allowance. Above that it goes on the return, and the allowance can be taken instead of actual expenses if that is better.
Is a new kitchen a repair or an improvement?
A like-for-like replacement is normally a repair and deductible; an upgrade that materially improves the property is capital and is not. The test is what changed, not what the invoice calls it.