UK Buy-to-Let Calculator

Since April 2020, landlords can no longer deduct mortgage interest from their rental income before calculating tax. Instead, you receive a 20% basic rate tax credit on the interest. This change significantly increased the tax bill for higher rate taxpayers.

For example, if you have £12,000 rental income and £8,000 mortgage interest, you are now taxed on the full £12,000 (at your marginal rate of 40% for higher rate taxpayers, that is £4,800), then receive a tax credit of 20% of £8,000 (£1,600). Your net tax is £3,200. Under the old rules, you would have been taxed on just £4,000, paying £1,600. The difference is significant and has made buy-to-let less profitable for many landlords.

Gross yield is the simplest measure: annual rent divided by property price. A property costing £250,000 with £1,200 per month rent has a gross yield of 5.76%. This is useful for comparing properties but does not reflect your actual return.

Net yield accounts for mortgage payments, expenses, void periods, and tax. A property with a 5.76% gross yield might have a net yield of just 2-3% after all costs, or even negative if mortgage rates are high. Always calculate the net yield before making an investment decision.

Since October 2024, buying a second (or additional) property incurs a 5% stamp duty surcharge on top of the standard SDLT rates. On a £250,000 property, this adds £12,500 to your purchase costs. This surcharge applies to buy-to-let purchases, holiday homes, and any property that is not your only residence.

The surcharge increased from 3% to 5% in October 2024. If you are replacing your main home (selling one and buying another), the surcharge does not apply. If you end up owning two properties temporarily while selling your old home, you can claim a refund within 3 years.

Beyond the mortgage and SDLT, landlords should budget for: letting agent fees (8-15% of rent), landlord insurance (£200-500 per year), maintenance and repairs (typically 1-2% of property value per year), gas safety certificates (£60-80 per year), Energy Performance Certificates (£60-120 every 10 years), void periods (typically 4-8 weeks per year on average), and potential legal costs for tenant issues.