How Are Buy-To-Let Mortgages Taxed?

Buy-to-let mortgages are subject to several taxes, including income tax on rental profits, which must be declared on your annual tax return. Property owners can benefit from the property income allowance, allowing for some tax-free rental income. While tax relief on mortgage interest has been restricted, landlords can still deduct 20% as a basic rate credit. Additionally, when selling a property, you may need to pay capital gains tax if the property has increased in value during the tax year.

How To Use The Buy-To-Let Tax Calculator

This Buy to Let Tax calculator allows you to see the impact that expenses and tax will have on your buy-to-let profits, and compare the retained profits you can expect from purchasing through an SPV limited company versus purchasing in your own name.

Whenever you type a number into one of the fields in the Personal column, that number will be automatically added to the corresponding field in the Limited Company column, and vice versa. The only exceptions are the fields relating to mortgage expenses; you’ll need to input these manually on both sides.

In the Yearly Rent field, type in the amount you’ll receive in rental fees from your tenants each year before any expenses.

• In the Expenses section, type in the amount you’ll spend on any allowable expenses like landlord insurance, letting agent fees and/or replacement domestic items (ie furniture and appliances) each year. Don’t forget to add your annual mortgage interest amount in the Limited Company column’s Mortgage Interest field.
• The limited company tax calculator will now show you the total amount of expenses which can be subtracted from your taxable income in the Total Expenses field.
• Sticking with the Personal column for now, type in the annual mortgage interest rate in the Mortgage Interest field. The calculator will now show you how much tax your rental income is liable for in the Profit Chargeable field, and the amount of mortgage interest which will be deducted under the new 20% tax credit for personal landlords. (Note how the former amount is lower in the Limited Company column; that’s because a limited company mortgage will allow you to deduct 100% of your mortgage interest from your taxable income!)
• Select which income tax band you fall into using the Income Tax drop-down menu in the Personal column. (If you’re not sure which percentage applies to you, check your personal income against the table on this page.
• You’ll now see how much income tax you’ll pay each year (minus the 20% tax credit for mortgage interest) in the Income Tax Payable field.
• Moving onto the Limited Company column, select your corporation tax band using the Corporation Tax Payable drop-down menu. (This is currently 19% for all limited companies.)
• You’ll now see how much corporation tax you’ll pay each year in the Corporation Tax field.
• You’ve filled in all the fields! Now you can see exactly how much retained income you’ll get by purchasing your buy-to-let via a limited company versus purchasing the property in your own name.