Buy-to-let mortgage calculator, 2026/27

Why buy-to-let mortgages are taxed differently

Since 6 April 2020, individual landlords can no longer deduct mortgage interest and other finance costs from rental income before working out taxable profit. Instead, the whole finance cost is stripped out of profit and replaced with a flat 20% tax credit against the tax bill. For a basic-rate taxpayer this is broadly neutral, but for higher and additional rate taxpayers it can push the effective tax rate on the interest portion well above their marginal rate, and can even push someone into a higher tax band who would not otherwise be there, because the gross rent (not net-of-interest profit) is what counts towards total income.

This is why interest cover ratio, not just headline profit, has become the number lenders and landlords both watch. A property that looks profitable on a net-of-interest basis can generate a real tax bill that eats most of the cash the landlord actually receives.

How this is calculated

The calculator treats the full gross rent as taxable income at your selected marginal rate, then gives a tax credit worth 20% of the annual mortgage interest, matching the statutory basic-rate restriction under Section 24 of the Income Tax (Trading and Other Income) Act 2005. Net cashflow is gross rent, less the interest payment actually charged by the lender, less the resulting tax bill.

Interest cover ratio (ICR) divides annual rent by annual interest and is the metric most buy-to-let lenders stress-test against, typically wanting 125% to 145% cover depending on whether you are a basic or higher-rate taxpayer, and often calculated using a notional stressed interest rate rather than your actual pay rate.

Structuring options landlords consider

Some higher-rate taxpayer landlords look at incorporating a buy-to-let portfolio into a limited company, because companies still deduct loan interest in full against rental profit before corporation tax, rather than suffering the 20% credit restriction. This comes with its own costs, including potential capital gains tax and stamp duty land tax on transferring properties in, and different mortgage products with typically higher rates.

Others focus on increasing the deposit to reduce the loan and therefore the interest exposed to the restriction, or on timing further borrowing around expected changes in personal tax bands.

Can I still deduct mortgage interest as a landlord?

Not directly against rental profit if you hold the property personally. You get a 20% tax credit on finance costs instead, applied after your tax on gross rental profit has been worked out, which can increase your effective tax rate if you pay tax above the basic rate.

Does the interest cover ratio affect how much I can borrow?

Yes. Lenders use ICR, often at a stressed interest rate, to work out the maximum loan a rental property will support. A lower ICR means a smaller maximum loan, regardless of your personal income or deposit size.

Would putting the property in a limited company avoid the restriction?

A company deducts loan interest in full against rental profit before corporation tax, avoiding the 20% credit restriction, but transferring an existing personally-owned property into a company can trigger capital gains tax and stamp duty land tax, so the numbers need checking property by property.

What if my mortgage is repayment rather than interest-only?

Only the interest element qualifies for the 20% tax credit; capital repayments are not tax deductible at all and simply reduce your cashflow further, though they do build equity in the property over time.